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Income Distribution And The Social Welfare Function: A Study Of Theories Of Distributive Justice

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Income Distribution And The Social Welfare Function: A Study Of Theories Of Distributive Justice

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Content This dissertation has been 64-5154 microfilmed exactly as received COLE, Charles Leland, 1927- INCOME DISTRIBUTION AND THE SOCIAL WEL FARE FUNCTION: A STUDY OF THEORIES OF DISTRIBUTIVE JUSTICE. University of Southern California, Ph. D., 1963 Economics, theory U niversity M icrofilm s, Inc., A nn A rbor. M ichigan Copyright by CHARLES LELAND COL 1964 INCOME DISTRIBUTION AND THE SOCIAL WELFARE FUNCTION A STUDY OF THEORIES OF DISTRIBUTIVE JUSTICE by Charles Leland Cole A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (Economics) August 1963 U N IV E R S IT Y O F S O U T H E R N C A L IF O R N IA G R A D U A T E S C H O O L U N IV E R S IT Y P A R K L O S A N G E L E S 7 . C A L IF O R N IA This dissertation, 'written by ................. TaI «ni Coll*................... under the direction of hi.M Dissertation C om mittee, and approved by all its members, has been presented to and accepted by the Graduate School, in partial fulfillment of requirements for the degree of D O C T O R O F P H I L O S O P H Y Dean D a te July. 31»...1*62...... ........ D IS SE iT A T IO ? M M IT T E E TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION................................... 1 The problem of distributive justice.......... 1 Importance of the problem..................... 2 Method of Investigation....................... 5 Scope of the study......................... 5 The sources used • • ......................• 6 The approach used........................... 8 Definitions of terms......................... 9 Plan of the vork and status of the problem . • 15 The marginal productivity ethiclsts.......... 15 Reformulations of the marginal productiv ity approach...............................16 Exploitation.................................17 The distributive ethics of Frank H. Knight . 19 Pigovian welfare economics...................21 The Pareto optimum...........................23 Compensation criteria.........................2*f The social welfare function...................25 Social choice of a social welfare function • 26 Summary and conclusions.......... 27 ii CHAPTER PAGE II. THE PROBLEM OP DISTRIBUTIVE JUSTICE.............31 * * III. MARGINAL PRODUCTIVITY THEORY AS A THEORY OP DISTRIBUTIVE JUSTICE...........................hi The search for ultimate Yalues. ....... *+1 The purpose of this chapter.............. *+3 The theory of marginal productivity.......... V5 Historical development of the marginal productivity theory .............. *+5 Johann Heinrich von Thunen (1783~l850). • *f5 Von Thunen*s "just wage" .............. *t6 The marginal productivity theory of John Bates Clark (18W7-1938)............ 50 Clark *8 analytical method ...............52 Two applications of the Clarkian marginal productivity theory.....................57 Intra-marginal exploitation •••••••• 59 The Marshallian view of the concept of marginal productivity .......... 62 Theory versus doctrine.............. 6*f Mathematical expression of the marginal productivity theory.............. 66 Nonlinear production functions* . . . . . 70 Marginal productivity theory as a theory of distribution...........................72 ill CHAPTER PAGE John Bate8 Clark and the genesis of ethical content ............................... 7*+ Clark*s interest in ethics................ 76 The appeal to the natural order.......... 78 Clark18 view of distributive justice. . . . 80 Social value •••••••••••••••• 8*f Clark's agnostic stand on the issue of the marginal productivity theory as a doc trine of distributive justice.......... 85 Conclusion.................. 90 Thomas Nixon Carver and the attempted definitive statement of social justice. • . 91 Thomas Nixon Carver (1865-1960) ........ • 91 The conflict between man and nature .... 92 Ethical considerations..................... 93 Justice versus charity.................. 95 On monopoly • • • • • • • • .............. 97 Competition and conflict.................. 98 "The new gospel of individualism" ..... 105 Achieving distributive justice within the gospel of individualism...............106 The gospel of individualism concluded . . . Ill The outline of Carver's program for distributive justice.......................112 iv CHAPTER PAGE Legislative program ...... 112 Nonlegislative program.....................113 Criticism of Carver's outline ....... 115 The influences of an era............ . . 115 The supply side of the factor market. • • 116 Service as the standard................. 119 Raising the productivity of labor . • • • 120 Carver on religion...........................123 The "rough justice" of William Smart (1853-1915)........................ 125 The "rough justice" of the market system. • 125 The marginal productivity principle • • • • 129 Conclusion and appraisal.................. 133 Modern reformulations of the marginal productivity ethic...........................13*+ Louis 0. Kelso and Mortimer J. Adler . . . 13*+ The Importance of capital ...............135 The "laborlstlc" distribution •••••• 136 The three distributive principles of Kelso and Adler.........................136 Socialism and laisses-faire capitalism rejected. ........ . . . . . . . . . . 139 Summation of the Kelso-Adler program. • • l*+0 Appraisal..................... 1*+1 v CHAPTER PAGE Further Modifications of the productivity doctrine— Raymond T. Bye and Ralph H. Blodgett ................................lU8 Defining "earned" incone ................ 151 Altering the conditions of factor supply .153 The entrepreneurial share of income. • . .155 Summary..................................157 Raymond T. Bye..............................158 Appraisal.................................. 160 The theories of this chapter— a recapitulation 162 IV. CRITICISM OP THE MARGINAL PRODUCTIVITY THEORY AS AN ETHICAL PRINCIPLE........................166 The setting of the criticism..................166 Some major viewpoints.......... 168 Walter A. Weisskopf on the marginal productivity ethic........................168 Valuation. • • • • ........................171 Disagreement on "productivity"............. 172 Observations of Prank H. Knight............. 173 Functional distribution......................175 The valuation problem........................175 Competition and distributive justice— summary and conclusion...........•••• 180 vi PAGE The attack on the ethics of the marginal productivity principle . . . ................181 Controversy on the minimum wage..............185 Summary of the fiyan-Carver argument..........187 The theory as a first approximation of justice....................................192 William Smart................................192 A. C. Pigou on productivity as a standard of desert.......... 197 Prank H. Knight............................ 199 The metamorphosis of the marginal productiv ity theory— conclusion......................200 Disagreement on ethical content..............202 The necessary presence of an ethic in distribution ..............20*+ The ethic of productivity....................207 In defense of the marginal productivity ethlci8ts................................209 THE THEORY OP EXPLOITATIOH......................213 The setting of the problem....................213 Marxian and non-Marxian exploitation • . . . 21*+ Basic theory...............................216 Pigovlan exploitation..........................217 The impact of monopolistic and imperfect competition theory..........................222 vii CHAPTER PAGE Recasting the equation of income distribution.............................231 Distributive justice in the theory of monopolistic competition.................. 233 Redistribution on a nonfact oral, non* personal basis...........................237 Monopsonlstic exploitation.................. 2*+*+ The nature of monopsony.................... 2*+*+ Existence of a possibly moral question . 2*+7 No ethical question involved............ 252 Deliberate exploitation...................... 253 Bloom's entanglement with semantics. . . . 25*+ Major cases of deliberate exploitation • • 255 Reconsideration of the "nondeliberative" case...................................258 Fixed technical requirements............ 261 Deliberate exploitation— the major case. 263 Conclusion...................................26*+ Little relevance to distributive justice • 26*+ Is "exploitation** an injustice?.......... 268 VI. THE DISTRIBUTIVE ETHICS OF FRANK H. KNIGHT. . . 272 Economist and philosopher .............. 272 The agnostic viewpoint. •• •• •............ 27*+ Criticism without prescription................ 275 viii CHAPTER PAGE Knight on equality.......... 278 On distribution in the free market.......... 281 On the justice of profit.................... 285 Knight's doctrine of distributive justice, • 288 The four ideals of distributive justice. • 290 Contribution •••••••••••••• 290 Heed.................................... 292 Equality................................ 292 Dignity and station...................... 293 Summary of Knight's position.............. 293 Allan G. B. Pi she r on "direct" and "radical" methods of income redis tribution ............................ 296 Knight on "unfair" inequality........... 297 Conclusion........................... 299 VII. PI GOV IAN WELFARE ECONOMICS AND DISTRIBUTIVE JUSTICE.................................... 302 The study of welfare........................ 302 The Benthamite background.................... 303 Arthur Cecil Pigou (1877-1959)............. 305 The Pigovlan concept of welfare • .......... 306 Pigou* s basic themes........................ 307 The national dividend..................... 307 Private and social measures................ 310 lx CHAPTER PAGE Land tenure . ............................312 Unre qui -ted benefit a • • • • • ..........*312 Decreasing coat industries................313 Exceptions to the Pigovian concept of decreasing cost Industries. ...... 31*+ The PigoTian scheme of distributive justice . 316 Transfers from the rich to the poor • • • • 316 Bounties. ..••••••••• ........ • 323 A national minimum standard of living • . • 32*+ The national minimum and distributive justice • • • • ............ 325 The ethical problem........................325 The rehabilitation of the Pigovian welfare economics— conclusions....................328 VIII. DISTRIBUTIVE JUSTICE WITH A MIHOR ETHIC— THE PARETO OPTIMUM................................330 Introduction.................................. 330 The nature of the chapter..................330 Inter- and intrapersonal comparisons. . . . 331 Value judgments and interpersonal compari sons....................... ....... 338 Foundations of Paretian welfare economics . • 3*+l Vilfredo Pareto (l8*+8-1923).............. 3*+3 Utility measurement and indifference........ 3*+5 x CHAPTER PAGE A aatter of irrelevance.................3*+5 Cardinal utility.........................3*+5 Ordinal utility...................... 3 *+6 Indifference............ • ............. 3*+7 Early contributors* . .................. 3*f7 The Maximization of consumer satisfaction graphically depicted............ • • • 3**8 Problems relating to the concept of indifference* ......... 355 A matter of irrelevance— conclusion . * . 356 Individual and social interests * ........ 358 Social harmony...........................358 Two objections to the principle of maximiz ing the greatest good...................359 The first objection.....................359 The second objection* • • • • .......... * 363 The Paretian prologue to distributive justice 363 Achieving the Paretian optimum.......... 36*+ The Edgeworth Box.....................36*t The importance of market structure. • • • • 367 Concern for other values...............370 The Pareto optimum, perfect competition, and ethics............................* 372 The inadequacy of the distributional criteria xi CHAPTER PAGE so far developed.........................375 Assuming a just distribution...............38W II. ATTEMPTS TO PRESERVE A POSITIVE SCIENCE— COMPENSATION PRINCIPLES.......................386 Avoiding interpersonal comparisons . • • • . 386 Compensation and justice.....................389 A practical example— The Trade Expansion Act of 1962............................. 391 Ethics— evaded, avoided, or confronted? . 392 The Scitovsky criterion.....................395 Graphical representation of compensation principles...............................398 Evidence of the positive state of welfare economics .................*+01 Broadening the scope of permissible recommendations. ............ .. Eliminating ambiguity.......................b07 Policy implications of the described methodology................................*flO Potentialities of a dynamic approach . , . *fll Building a "newer1 * new welfare economics • *fl*+ The need for ethical norms.............. *fl8 I. NORTHER STEPS TOWARD NORMATIVE ASSESSMENT. . . 1*19 Welfare economics: a positive or normative study?...........................*+19 xii CHAPTER PAGE The Archibald-Little dialogue.............. *f20 Resolving the Archibald-Little dispute. • • *f28 Requiring a "good" redistribution— the work of I. M. D. Little.........................if30 Interpersonal comparisons and value judgments.................................^30 The Little criterion. ..............* *+32 A hypothetical situation..........•••• *f33 Problems of the Little criterion............ *f35 The Samuel son criterion— a preliminary to ethical discussion...........................MfO The necessity for ethics.................. The social welfare function— a note . . . Mf5 XI. USING THE SOCIAL WELFARE FUNCTION............ Mf7 Expressing the social welfare function. . . . Mf'7 The Bergsonian welfare function............ Mfb Finding the community standard. ••••••• *f59 The social welfare function and justice • • *f59 Democratic selection of a social welfare function. .............. *f63 Illustration of the General Possibility Theorem •••••»•••••••••• M>9 Consistency with two alternatives • • • • *f69 Expanding the alternatives beyond two • • *f70 xiii CHAPTER PAGE A reflection upon social choice and individual values.....................*+72 Relating social choice and individual values to justice...................*+73 The effect of changing the premises • • • *+75 A lesson from Arrow and Blau.......... *+78 Irrationality, the level of national income and the social welfare function........ *+79 Increasing the level of national income • • *+79 The problem of envy.....................*+79 The Duesenberry type of welfare function. . *+8l Ethical and social considerations...... *+83 XII. ETHICAL POUNDATIONS OP DISTRIBUTIVE JUSTICE . . *+88 The ethical or "G-function" ......... **88 What is justice? .......................*+89 Platonic justice.........................*+90 Reflections on Platonic justice • • . • • **9*+ Aristotelian justice.....................*+95 Utilitarian ethics.......................500 Theories of welfare economics as theories of distributive justice.............. 505 Ideal utilitarianism .................507 John Rawls: justice as fairness........ 508 Rawls' principles of justice.......... 511 xiv CHAPTER PAGE The pertinence of Rawls' theorem of justice................................ 513 Summary 515 Philosophers and theologians on moral issues of income distribution. .......... 516 Methodology and ethics. .................. 516 "Why be just?"............................ 519 Religion and justice. ............522 Relevance of philosophy and theology to normative economics . . . . . . . . . . . 52*+ An operational ethic for the "short run" • 525 Changing the philosophical foundations. . . . 530 Existentialism— a digressive argument . . . 530 Scholastic philosophy— the present-day T ho mis to .......................... 531 Heinrich Peach (185^-1926). ••••••• 53*»- Scholastic distributive justice and welfare economics.......... 5*tl Establishing a social ordering................5*+6 The imposed social welfare function— the universe! goodwill. .......... 5**6 Further consideration of a "general will"— the work of Jerome Rothenberg •••••• 553 Community consensus......................553 xv CHAPTER PAGE Ordering by an "external" source . • . • 556 Ascertaining prevailing values...........558 Assessment of Rothenberg's contribution. 562 Tiscovering a community ethic by an additive principle....................... 56*+ "Utility" or "welfare?"...................56*+ Cardinal welfare.................. 569 Application of the foregoing to distributive justice...................576 Escaping the utilitarian bias.............576 XIII. DISTRIBUTIVE JUSTICE AND POLITICAL DEMOCRACY . 579 A review of some main problems • ...........579 Analytical rigor and distributive justice. 579 Defining a just distribution...............580 Towards an eclectic theory of distribu tive justice.............. 581 Distributive justice by popular vote? . . . 582 Morality or popularity.....................587 Questioning the popular vote.................588 The desire for justice.....................588 Political feasibility.......................589 Is welfare economics compatible with democracy?............................... 591 Majority decisions and minority rights • 59*+ xvi CHAPTER PAGE Elements of an eclectic theory of distribu tive justice............................ 600 A "point of unambiguous ethical signifi cance" • •••••••••.•••••• 600 An issue of justice.................... 603 Attempting to evolve a just distribution . 605 Determination of a social welfare function 6lb A recapitulation on the nature of this discussion • ••••••••••» 620 Justice in the larger society...............621 Assumption I .............................621 Assumption II • • .......................622 Working on the problem of distributive justice...............................623 The "just society” .........................626 Summary....................................... 630 XIV. SUMMARY AND CONCLUSIONS.........................632 Summary. •••••.•••••••••••• 632 The problem of distributive justice. . . . 632 The marginal productivity ethiclsts. . . . 632 Technical exploitation . * .................639 A skeptic's contributions • •••••••• 6*+l Pigovlan distributive justice...............6^3 Paretian welfare economics.............. 6*+5 xvii CHAPTER PAGE Ethical criteria.............. 6*4-8 The social welfare function................ 6*4-9 The importance of ethics 65l Conclusions.............................. . 65*4- Distributive justice and the marginal productivity ethic ........... 65*4- Exploitation .......... 657 Prank H. Knight'a contribution •••••• 658 The relationship of Pigovian welfare economics to distributive justice. . . . 659 The new welfare economics................. 660 The social welfare function. .«••••• 662 An eclectic theory of distributive justice 663 Unresolved problems. ..••••...•• 666 A final note .................... 666 BIBLIOGRAPHY.......................................... 669 xviii LIST OP PIGURES PIGURE PAGE 1. Income Possibility Curve.............. . . . 35 2. The Marginal Productivities of Labor and Capital.....................................• 56 3* Intra-Marginal Pactoral Units............... 60 k. Value of the Marginal Product of Labor .... 219 5. Shifts in the Value of the Marginal Product Schedule 221 6. Marginal Revenue Product Curves of a Pure Competitor and a Monopolistic Competitor Compared 227 7. Value of the Marginal Product and Marginal Revenue Product Compared ......... ..... 229 8. Consumer Adjustment to Income Changes.......... 236 9. Marginal Cost Pricing.......................... 2*f0 10. Overcoming Monoposonistic Exploitation .... 2^6 11. Nondeliberative Exploitation ................ 259 12. Fixed Technical Requirements for a Produc tive Pactor............................ 262 13. Deliberate Exploitation........................ 265 l*f. The Maximisation of Consumer Satisfaction. . • 3*+9 15. Attainment of the Paretian Optimum............365 xix FIGURE PAGE 16 • Trade under Conditions of Pure and Perfect Competition • • ............................ 368 17. Trade with a Price Differential in One Good • . 371 18. Compensation Payments...........................*+00 19* Compensation Payments under Ambiguous Condi tions .........................» ..............*+06 20. The Little Criterion............................ ^3^ 21. The Utility Possibility Frontier................ Mt3 22. The Point of "Constrained Bliss"............ 23* Graaff's Cases 1 and 2...........................58*f 2*+. Graaff's Cases 3 and if...........................586 25. Political Feasibility Function and Welfare Contours.................. 590 26. Income Possibility Curve.........................595 27* Consent Areas and Preference Points............ 596 28. Depiction of a Mutual Consent Area.............. 601 CHAPTER I INTROBUCTIOH I. THE PROBLEM OP BISTRXBOTITS JUSTICE Income distribution, as the term is used in econom ics, refers to the division of the aggregate product of an economy between its members. Since the product of an economy is consumed by the members, directly or indirectly, the product may be thought of as the aggregate real income of an economyy and when it is divided among the members of that economy) it forms their individual real incomes. In any but the most primitive economies, income is not distributed in its real form, that is, as actual goods and services. Rather, the distribuend is the generalized purchasing power provided by a money income. Money income is a claim on real income. For our purposes, income thought of in either of these two forms is conceptually satisfactory. Many theories have been evolved to explain how income is distributed. They are concerned with explaining an empirical fact. Although the present dissertation does not and cannot neglect this area of economic theory, the principal matter of study is how income ought to be 2 distributed. Thus, this dissertation is concerned with the social ethics involved in the distribution of aggregate income among several recipients. Undoubtedly, there are many ethical criteria which could guide an econoay in the disposition of its total income; the one chosen for discussion here is that of jus tice. It is difficult to do much better than to fall back upon the definition given by the philosophers of antiquity and say that justice is what is "due** a man. The next ques tion of what is a man's due, is, in the author's opinion, most satisfactorily settled by asserting that what is due a man is the opportunity to become whatever individual it is within his capacity to be. This dissertation investigates what various authori ties- -principally economists— have had to say on what they believe is due an individual. II. IMPORTANCE OP THE PROBLEM One of the most devastating charges that can be pressed against a society is to allege that it is unjust. Men may admit to, or tolerate, failures in their economic or governmental systems in the areas of aesthetics, growth, and even peace, for example, but when a group or an individual has decried a system for its injustice, history shows that its defenders usually find an eloquent advocate 3 for their cause or acquiesce in the charge. Probably the greatest preponderance of charges mutually traded among the proponents of various economic systems involves the justice supposedly meted out in each. It is commonly urged that the question of distribu tive justice is mooted in rich, advanced, or growing economies. Continual growth in the national product is felt to be a solvent for distributive inequities, inasmuch as there is the promise of more for everybody. Despite the author*8 personal conviction that this is a morally bank rupt way of settling the issue, it seems quite likely that the problem is often most acute and aggravated in an indus trialized society owing to the extreme interdependence existing between the members of a modem industrial commun ity. The question cannot be settled here but must be left to another study. We may note, however, that in those areas of the world in which marked distinctions exist between classes, the problem is not likely to be one of i distribution, for backward areas of the world have little income to distribute. Many of the inequalities that do exist are founded upon the possession of vast quantities of static wealth by the few accompanied by the virtual non existence of items capable of ownership by the many. In these societies, the problem of the haves and have nots cannot be traced entirely to the functioning of an economic V system, but rather stem from custom, birth, religion, and culture. Moreover, the human misery often obtaining in so-called "backward1 * economies is not so much a matter of justice as it is of production. Underdeveloped economies, for whatever reason, do not have the ability to meet the demands of their peoples. The problem of distributive jus tice arises when there is something to distribute. It may be interjected here that the problem of distributive jus tice does arise in the relationship of the advanced econ omies to the underdeveloped areas. Undoubtedly, this is true, but the area of moral obligation between nations has been arbitrarily eliminated from the scope of this disser tation. The setting of the problem investigated here is the relationships between individuals as distributors and dis tributees arising in modern industrial economies. These economies feature a high level of interdependence between the various members. Primitive economies are marked by a much greater degree of independence and self-sufficiency of persons and societal groups than is true in Western society. It is in the relationships between individuals that problems of justice arise. The more frequent and the more complex are these relationships, the more likely it is that the issue of distributive justice will be perti nent . 5 III. METHOD OP INVESTIGATION Scope of the Study Although writing on distributive ethics has occupied the attention of philosophers cince at least the time of Aristotle, it is only since the identification of economics as a discipline separate from that of moral philosophy that persons commonly regarded as economists can be said to have contributed to the subject. Some difficulty may be involved here in attempting to distinguish political econo- mists from "nonpolitical" economists, but the distinction is purposely left blurred. In the closing chapter of this dissertation, the author commends the suggestion that in the field of policy recommendations, economists should be come or revert to being political economists. Owing to the vast literature of distributive jus tice , the author has established some rather severe boun daries . The first limitation is restrict consideration to those authorities commonly regarded as professional econo mists. Some exception has been made to this rule in reviewing the work of several philosophers and theologians where it has been necessary to supply background material from their writings. The second limitation is to restrict the time period involved to the twentieth century. Although the works of 6 the authorities under consideration nay have their roots in the thought of past ages, the authors themselves have made their contributions in the current century. The final limitation is to foreclose consideration of socialist and MutopianH theorists. No necessary ideo logical implications should be drawn from this decision, the basic consideration being to bound further the scope of this study. The Sources Used As this dissertation is, in great part, a critical study of several theories bearing upon distributive justice, the major method relied upon was to examine the original works of the authorities studied. The author was fortunate in that the Library of the University of Southern California is well equipped with the original works of those authors whose theories are developed in this study. In addition to the original sources, the author of this dissertation consulted a number of commentaries written about the works of the theorists involved, but with a few notable excep tions, the relevance of these commentaries to the issue of distributive justice is negligible. There is a great paucity of literature on distribu tive justice in the learned journals of economics with one exception, the Review of Social Economy. In the area of welfare economics, the situation is 7 almost the exact reverse. Few definitive books exist, and great reliance must be placed on periodical literature which, in contrast to the situation of pure distributive justice, is vast and somewhat unmanageable. The principal published volumes on welfare economics consulted by the author were: Hla Hyint, Theories of Welfare Economics (New York: Augustus M. Kelley, 1962); Melvin W. Reder, Studies in the Theory of Welfare Economics (New York: Columbia University Press, 19^7); and Jan de V. Graaff, Theoretical Welfare Kccnon-ica (Cambridge, England: Cambridge University Press, 1957). One notable periodical article that should be men tioned is: E. J. Mishan, "A Study of Welfare Economics, 1939*19 59*1 1 Economic Journal. U X (June, I960). Most of the standard economics journals were a source of considerable material on welfare economics. The author cannot help noting the marked interest that the British journals appear to have in publishing articles on welfare economics. Among the most-used journals were: the Economic Journal. Economica. the Oxford Economic Papers, the Review of Economic Studies, the Quarterly Journal of Economic a. the Journal of Political Economy. Econome tr lea. the Review of Social Economy, and the American Economic Review. 8 The Approach Used This dissertation is primarily a critical and syn thetic study. The major method used here has been to examine the works of each economist separately. The principal elements in each theory are outlined. Following this presentation, a critical evaluation of the theory is attempted in which the author of the present work states his own critique as well as bringing to bear the comments of other authorities upon the theory under consideration. After a number of similar theories have been developed, they are compared, and, in some cases, a synthesis is attempted. After a broad group of commonly-based theories has been developed, criticized, and synthesized, when possible, a general critique is undertaken. Not all of the theories examined in this disserta tion can be properly considered works on distributive jus tice without some major concessions about their philosophi cal underpinnings. This is particularly true of the discipline termed the "new welfare economicsAlthough a lively dispute has developed between those who assert that welfare economics is a positive discipline and those who claim it to be normative, the author believes that no study of distributive justice can Ignore safely the implications which welfare economics has for this field of study. 9 At the conclusion of the dissertation, the author presents an "eclectic theory" of distributive justice in which some of the more recent efforts in ethics, theoreti cal welfare economics, and the social welfare function approach are combined in an effort to state in a dis ciplined way how a society interested in working on the problem of distributive justice could proceed toward this relevant but Impossible goal. IV. DEFINITIONS OF TERMS Of all the areas of economics, there is probably no field marked by such semantic misfortune as that of welfare economics. Most of the terms used are defined in the body of the study, but it may be helpful to identify some major items of nomenclature here. Marginal productivity ethicists. The term "marginal productivity ethicists" has been applied hy the author to those economists who asserted that the distribution of income shares as indicated by the theory of marginal pro ductivity constituted distributive justice. Exploitation. As used in the chapter on exploita tion, the term refers to the receipt by a factor owner of less than the value of the marginal product of his factor units when the factor is employed by a pure or perfect 10 competitor. If the employer is an imperfect or impure com petitor, the term refers to receipt by the factor owner of less than the marginal revenue product of his factor units. Utility. "Utility” and "welfare" are badly under stood, poorly used, and confused terms. "Utility" is used in this dissertation in the sense usually given to it by standard economic texts, namely the power of a good or a service to satisfy a human want. Thus understood, "units of utility" may be thought of as "units of satisfaction." Cardinal utility refers to the number of units of satisfac tion a particular good or service confers on its consumer. The widespread belief that it is impossible to measure utility has led to the advocacy by some economists of the use of ordinal utility, which involves merely ranking alternatives in order of the preference of some particular consumer. Welfare. This troublesome term is construed by the author, although not by everyone else, to include the ethical "preferences" of an individual. A person's appraisal of welfare necessitates the acceptance of certain moral judgments. Utility function. An indiyidual's utility function expresses his subjective preferences for goods and services. Social welfare function. The author has a personal preference for regarding the social welfare function as a "norm of unambiguous moral significance.'1 It is the ethic that counts. Once postulated, it enables economists to define, without hesitation, a "best" position with refer ence to the values of the community. The social welfare function may be regarded as some type of composite or com promise of the social welfare functions or ethical inter pretations of all or various members of the community. InterpeT-ftnnnl comparisons. An interpersonal compari son, as the term is used in the literature of welfare economics, refers to a comparison made between the levels of satisfaction enjoyed by different individuals as is involved in stating, "Adam is better off than David." Interpersonal comparisons are frequently confused with value judgments. Proponents of welfare economics as a positive discipline conceive of interpersonal comparisons as having no more recommendatoxy or persuasive force than the assertion, "Adam is heavier than David." However, the statement "Adam is better off than David," requires a value judgment as to what "better off" means. Once we have defined what consti tutes a state of well-being, we can develop an idea of the sense in which Adam's current state is superior to that of David. With the value judgment made, the statement "Acam is better off than David," joins the comparison "Adam is heavier than David" as a purported recital of fact. Whether either statement is accurate is another matter 12 Intrapersonal comparisons. Intrapersonal compari sons require only that the individual search his own mind to produce the statement, "I prefer alternative X to alter native Y." Value .judgment * A value judgment is an assessment of a particular situation by an individual. Although not all value judgments are moral judgments, most of those falling within the scope of the subject of distributive justice will be found to possess moral recommendatory force. Statements intended to be moral judgments generally include some word such as "ought" or "should♦" Given the interper sonal comparison, "Adam is better off than David," someone might make the judgment, "Adam should transfer some of his income to David." Indifference, Indifference is another troublesome concept. For this dissertation, it is defined as the state in which an individual derives equal satisfaction between any number of different combinations of several alterna tives. We may say that an individual is indifferent to the combination of 6X and 2Y and the combination of 5X and *+Y, if he receives equal satisfaction from each. The Fareto optimum is used to 13 describe a state of equilibrium in which it is impossible to make anyone better off without making someone else worse off. Compensation. Compensation is a payment or the possibility of payment made in accordance with so-called "compensation criteria" which is intended to overcome the stultifying effect on proposed policy changes of the rule of the Pareto optimum. Losses which could prec.ude the unanimity of agreement necessary under the Pareto criterion may be compensated out of the net gain of society if it is large enough, thereby making everyone better off than before• Bribe. A "bribe" as used in the literature of wel fare economics refers to the payment offered by potential losers to potential gainers to compensate them for fore going a proposed policy change. Rawlsian concept of justice. The concept of justice finally adopted by this paper for the purpose of argument is the Massachusetts Institute of Technology who in his article "Justice as Fairness," argues that justice consists of fairness in formulating the rules of the game and in adhering to them.^ Ijohn Bawls. "Justice as Fairness," Justice and Social Policy. F. A. Olafson (ed.) (Englewood cliffs, Hew Jersey: Prentice-Hall, Inc., 1961). 1* + Grand utility possibility frontier. The graphical depiction of the "grand utility possibility frontier” is a utility possibility curve enclosing all "point" utility possibility curves. It shows the highest levels of satis faction available to a community from any number of produc tive arrangements• Every point on the frontier represents fulfillment of the Pareto optimum when the economy is fully employed and is using the best available technology. With out further information, no point on the frontier can be cited as the "best" point of all points. Social welfare contours. Social welfare contours are graphical depictions of the social welfare function of a community. They are analogous to the indifference curves of an individual but are not themselves community indiffer ence curves. Each contour further removed from the origin depicts a higher level of welfare. The shape of the con tours has been the subject of much conjecture, but is not a point of interest for this dissertation. Constrained b l i a a . The point of "constrained bliss" is represented graphically by the point of tangency between the utility possibility frontier and a social welfare con tour. It is thus a "best" point of all points, represent ing the fulfillment of the ethical optimum subject to the ability of the economy to satisfy it. 15 V. PLAN OP THE WORK AND STATUS OF THE PROBLEM The Marginal Productivity Ethicists Early in this century? simultaneously with the devel opment of the theory of marginal productivity, a number of economists asserted that the distribution of income in accord with the principle of marginal productivity consti tuted justice in the distribution of income. The leading exponents of this view were John Bates Clark, Thomas Nixon Carver, and William Smart. To them and to their lesser- known adherents, the author has given the name Hmarginal productivity ethicists,1 1 for these men attempted to moral ize on the basis of the empirical hypothesis of the mar ginal productivity theory. The theory of marginal productivity is a theory of factor demand. Properly qualified and stated, it can be viewed as a theory of income determination. It is only one of several such theories. Briefly, it holds that an employer will find it worth-while to hire factors of pro duction up to the point at which their marginal revenue product is equal to their marginal factor cost. Inasmuch as the theory indicates that the factor owners receive that which their factors contribute to the revenues of the firm, the indicated apportionment was declared to be just accord ing to the marginal productivity ethicists. A number of serious deficiencies mar this approach. 16 It falls to consider the problem of valuation. Consumers may be willing to pay much for items of doubtful ethical validity and little for wholesome goods and services. The matter of the distribution of property is overlooked or skirted. The ownership of factor units plays a decisive role in income apportionment. Changes in technology, con sumer demand, and other social phenomena which cause some factors to be surplus and others to be in short supply are left untreated. Reformulations of the Marginal Productivity Approach The indicated deficiencies of the older marginal productivity ethic have left the way open to a number of reformulations of the theory. For the most part the authors of the newer versions seem quite unaware that the core of their argument is simply a repetition of work done many years earlier. It must be said, however, that the newer adaptations of the theory do manage to avoid many of the severe deficiencies of the older works by meeting the problems with rules or a rather complete reorganization of the economic system while keeping its basic capitalistic nature. The rules offered to make the marginal productivity ethic a more tenable principle of distributive justice, although repairing several deficiencies, are too artificial, 17 cumbersome, and numerous to be applied in any significant way in our society. The other approach has the merit of noting the decisive effect of the distribution of property on income distribution. Eschewing a specialistic ownership of the means of production, it contemplates a redistribution of shares in corporations among all the people of this nation such as to give each of them a "viable” income. Implicit in this argument is the tenet that capital produces by far the greatest part of the national income. Exploitation Forming a transition from the marginal productivity ethic to Pigovian welfare economics is the theory of exploitation. This concept, an aggravating nuisance in economic theory, originally held that if a factor owner were not paid the value of the marginal product of his factor units, he was held to be exploited in that he received less than the worth of the product attributed to the factor. With the advent of theories of imperfect and Impure competition came the realization that in departures from the purely and perfectly competitive models, each fac tor owner could not receive the value of the marginal product of his factor units, for to do so would more than exhaust the total revenue of the firm. The most devastat ing part of the demonstration was that this came about 18 without any moral default reasonably Imputed to anyone. Thus, exploitation was revised to mean the receipt by a factor owner of less than the marginal revenue product of his factor units, it now being thought that a factor owner should receive the contribution to the revenue of a firm made by his factor units. This thesis, in turn, received a blow when it was shown that a monopsonistic employer may not pay factor owners even the marginal revenue product of their factor units. It is most difficult, if not absurd, to impute moral culpability to anyone in any of these cases. Exploitation arising from the pattern of monopolistic competition is an inescapable feature of the economic order. Attempts to ameliorate this form of exploitation may involve reforming the economic system to make it more competitive. The price may be more than the removal of a mere term would justify. The most serious indictment of the theoiy of monopo listic exploitation is that a so-called "exploitative" rate of factor reward may be higher than the "nonexploitative" rate. Cases of monoposonistlc exploitation may be remedied by taking steps to make the factor market more competitive, expecially through increasing factor mobility, and by minimum wage laws and collective bargaining. The most regrettable tendency in discussions of 19 technical exploitation is to confuse inhumanly low wages with cases of exploitation. It seems to be quite often the case, that instances of subviable wages are not cases of exploitation but exist purely because of the low productiv ity of the factor units involved. Conversely, factor units which are technically exploited may yield their owners incomes permitting a satisfactory level of living. The theory of exploitation may be indicated for the semantic confusion it has created, but its most serious malefaction has been to cause various authorities to waste their efforts in trying to remove technical exploitation rather than in trying to increase the productivity of those nonexploited factor units which are unable to yield their owners a viable income. The Distributive Ethics of Frank ri. Knight The numerous and pertinent contributions of Frank H. Knight to the literature of distributive justice have induced the author to devote a separate chapter to his work. The most notable aspect of Knight's thesis is its essentially negative character; he has compiled a catalog of those things which distributive justice is not. Knight has never professed that he knows what dis tributive justice is, but has critically and caustically denounced those who think that they have a special insight 20 Into the natter, Knight's most consistent attack is on the soft spot in almost all theories of distributive justice— the valua tion problem. The justice of factor shares determined in the free market depends, to a great degree, upon the values which consuners attach to the final products produced by factoral units. If consuners' decisions are ethically imperfect, factor rewards must reflect this moral imperfec tion. The role of Nature in giving individuals unequal starts in life is frequently cited by Knight as a factor tending to make the justice of distribution an insoluble problem. There is no essential difference, he thinks, between inheritances of property and endowments of health, physical strength, beauty, or mental ability. These differ ences between human beings mean that even if an individual does in fact receive that which he creates, the problem of justice in distribution remains. The greatest part of Knight's distributive ethics revolve8 around the problem created by inheritance. Although it is difficult to develop a unifying thesis from Knight * a writings, the central issue in his thinking can be seemingly isolated. The income received by a person is likely to be a just share of total income if the service contributed by his factor units is in accord with the 21 basic principles of the morality (Judeo-Christlan) of Western society, and those services are the result of a conscious effort on the part of the individual to develop talents latent within himself. Plgmri^n Welfare Ee^nnaieg Prom theories of distributive justice related in greater or lesser degree to the principle of marginal productivity, the dissertation turns to the discipline of welfare economics. The welfare economics of A. C. Pigou differs con siderably from Paretian welfare economics. Pigou constructed a welfare economics frankly ethi cal in nature, based heavily on Benthamite utilitarianism. Therefore, it is a thesis involving value judgments and interpersonal comparisons. Pigou accepted the basic Benthamite premise that people have approximately equal capacities for satisfac tion. Prom this it can be seen that transfers of income from the rich to the poor could be endorsed appropriately, in that it would appear reasonable that the increase in the utility of a poor man would greatly offset the loss of utility to a rich man, the total effect being a net gain in the satisfaction of a community* Pigou adopted a basic principle of classical welfare economics in relating increases in welfare to increases in 22 the national product. Generally, he endorsed all measures to promote the growth of the national dividend, so long as the position of the poor was not worsened. A further notable contribution of Pigou was his insistence that welfare cannot be assessed using the economists' conceptual tools appropriate to optimization in the private sector of the economy. These tools must be adapted to a social context in which all gains and sacri fices are comprehended. The equality of marginal cost and marginal revenue may indicate the profit maximizing level of output for a firm, but it does not take into account the costs incurred and the benefits received by persons exter nal to the firm. Therefore, production may not be properly related to the welfare of the community. If marginal social cost and marginal social benefit can be brought into equality, so that externalities are appropriately con sidered, the direction of production and levels of welfare can be considered in a more meaningful way. Pigou's reliance upon value judgments and interper sonal comparisons has received violent criticism from those economists who disparage their unscientific character. Unscientific or not, Pigovian welfare economics has the merit of recognizing that value conclusions can be drawn only from value premises. 23 The Pareto Optimim Economists disavowing a welfare economics infused with ethical postulates and interpersonal comparisons have found a more compatible intellectual environment in the Pareto optimum. Attempting to construct a wertfrei welfare economics, they have produced a number of peculiarities, not the least of these being the considerable inability of welfare economics to be useful in the realm of policy. To avoid reliance on interpersonal comparisons, the Pareto principle severely attenuates the Benthamite ethic by asserting it to be a good thing to increase aggregate well-being, if tne position of any one individual is not thereby worsened. It is therefore a unanimity principle. Although it attempts to avoid value judgments, it relies on one— the hopefully innocuous proposition that individual desires have value as such. The Pareto optimum is related mostly to efficiency rather than ethics, but it is contended that this aspect can be made meaningful in a discussion of distributive jus tice . Contending that a distribution of goods and services is not optimal if trading between individuals would make them feel better off has no Immediate applicability to how much of various goods and services an individual ought to receive• The Pareto principle is, however, useful if an ethically acceptable division of income is given, for then it asserts that individuals should be allowed to consume according to their own peculiar dictates. Thus, it is helpful in separating questions of efficiency from those of ethics, the boundary between them often being quite hazy. The author realizes, of course, that a complete dichotomy between efficiency and ethics is not realistic, the suggestion merely being that a general demarcation may be noted between the commonly recognized provinces of the scientist and the moralist. Similarly, there is no reason that these two functions should not be exercised by the same person. Compensation Criteria The unanimity principle of the Pareto criterion has caused a number of economists to conclude that virtually no policy recommendations could be carried out because somebody is highly likely to be a loser and thus prevent the change. The anticipated impasse was avoided hopefully by the framing of some compensation criteria which hold, among other things, that changes producing an increase in welfare ought to be undertaken if the resultant increase in the well-being of the gainers enables them to compen sate the losers, so that everybody is better off than before. If the gainers can bribe the losers to forego the change, a simple redistribution of income rather than a policy change may be indicated. In the course of the employment of the compensation criteria, some ambiguities developed which were met by the framing of new criteria. Compensation criteria have been subjected to criti cism similar to that given the Pareto criterion. Critics have argued that it is not clear how compensation could be paid or that it would be paid. Prom an ethical point of view, the deficiency of compensation criteria is that they do not provide a guide for handling those cases in which no moral reason can be found for giving compensation. Of course, if an ethically ideal distribution of income can be assumed in the first instance, the compensations principles may be useful. The ethical paucity of the new welfare economics has led a few economists to argue for the frank inclusion of value premises in the discipline. This would add to the existing criteria the judgment of "goodness'* in the assess ment of a proposed change. How the merit of a change is to be judged and by whom remain interesting problems. The Social Welfare Punetion The social welfare function has been defined as a norm of unambiguous moral significance. Its usage bespeaks the frank attempt to bring ethics into the body of welfare economics. If this can be done, it should at last be 26 possible to discuss distributive justice within the frame work of the discipline provided by welfare economics. The social welfare function enables economists to state which of a number of Paretian optimal positions is the MbestM position in an ethical sense. Social Choice of a Social welfare Punetion The question of what or whose ethics are to be embodied in the social welfare function has been the sub ject of a number of studies. Obviously the area is one of profound philosophical (and theological) importance. A social welfare function could be imposed by a dictator who may or may not claim a divine right to do so. Similarly, a social welfare function might be enunciated but not imposed by an individual or a council claiming to have some special insight into the nature of the Good or the Just. In our society, the major emphasis of economists understandably has been upon the democratic choice of a social welfare function. Two basic views may be taken of this procedure. The first is that the people or their elected representatives meet to determine the principles by which the community will conduct itself. The other view sees the people or their delegates meeting to express their opinion of an independently existing ethic. The problem is not one of moment for this dissertation, for it is argued 27 here that as far as anyone can tell, the procedure vould appear to be the sane. Whether it actually is or not is beyond the scope of this study. Sone economists who have investigated the social choice of a social welfare function have been troubled by problems of inconsistency and undemocratic outcomes. The view accepted in this dissertation is that the problems are artificial, in that they appear to be far more serious in academic studies than they are in democratic society, for a going society does not attempt to move toward its goals in the precisely mathematical or logical way suggested by a number of authors. This dissertation accepts the view that the scientist need not be any more consistent than the context in which he works; indeed to try to be more precise is spurious accuracy. It is enough if a general agreement can be found on values, and this agreement appears to be likely in a going society of the Western type. VI. SUMMARY AND CONCLUSIONS Although there is a considerable literature extant on the problem of distributive justice, much of it is now completely or partially discredited. Similarly, welfare economics, which, without suitable qualifications, cannot be regarded as bearing upon distributive justice, has left many persons antipathetic toward it or bemused over how to 28 apply it in a practical sense. The author's contention is that for welfare econom ics to have a bearing upon distributive justice, or other policy issues for that matter, ethical norms must be incor porated, whether this means using a social welfare function or building a "newer" new welfare economics of a frankly normative character. The author sees no reasons why these actions should prejudice or sully the work of those who prefer to pursue an ostensibly wertfrei discipline. Similarly, the author sees no reason why those economists who are interested in investigating problems of economic ethics should deny them selves the pleasure afforded by so doing or should deny to the profession and to people in general whatever benefits their disciplinary training may enable them to confer. The author has accepted the premise that in a demo cratic society the source of the social welfare function is the people themselves. This has no necessary connection with either ethical relativism or absolutism. The author accepts the general principle of some form of voting as the most likely way of determining the ethic. Such inconsisten cies as arise should be expected in a community as vast and diverse as, say, the United States, but if the society manages to exist and prosper, it would appear that whatever inconsistencies as do exist are not debilitating, and 29 economists should not worry over them if there is enough of an agreement to produce a workable set of rules under which the society progresses. The rule-making procedure is at the heart of the "eclectic theory" of distributive justice presented by the author in the concluding chapter. The "eclectic theory" of distributive justice enun ciated in the last chapter of the dissertation is not a statement of what justice in distribution consists. It is merely the drawing together of a set of principles from among those discussed in the body of this work which the author feels may have applicability in a society which is interested in working on the problem of distributive jus tice • The author views the essential nature of the imple mentation of justice in the distribution of income as a problem-solving situation. A society cannot be a just society, for that is an impossible ideal, but a community can be a justice-seeking society which, situation by ritua- tion, attempts to insure justice to each of Its members. A major factor inhibiting older theories of dis- ’ tributive justice, and welfare economics itself, from mak ing a significant impact upon the problem of distributive justice is the heavy grounding which each has in the ethics of hedonistic utilitarianism. The vast majority of contem porary philosophers agree that the hedonistic utilitarian ism of Benthan, Mill, and Sidgwick is incapable of generating a principle of justice. The author concurs in this, and has therefore incorporated into his eclectic theory a promising recent ethical theory in which justice is viewed as fairness in formulating the rules of the game— the game, for our purposes, being the economic endeavor in which all of us are collectively engaged. Ideally, the most compatible setting for justice would be in a community in which the members are totally concerned with the welfare of each other. Indeed, in such a community, the need for justice may be obviated in that selfless involvement with others may go well beyond the ethical concept denoted by the expression "justice." What ever the case, it seems likely that the form of societal organization in which concern is likely to be established to the highest degree is the family. The more society resembles a family, the more is justice likely to prevail. The author is aware that it is probably quite uto pian of b-ia to compare our society of self-interested individuals to a family. Although people are self- interested, they can aspire to fairness in their dealings with each other, fairness demands that each person grant to any other that which he would claim for himself. This principle of fairness requires mutuality, in that any one member of society, having a morality, could meet with any 31 other member of society, also having a morality, and acknowledge before each other that the rules for which they contend are fair. The rules of a modem society are decided by the majority. The principle of Justice is that the rules give no special advantage to the majority in the sense of insur ing constancy of beneficial outcomes for the majority, and that for maximum freedom under the law (the rules), out comes in conformity with the rules be worked out in advance by the participants and be left unchanged by the majority even if it is adversely affected by some particular out come, for the minority has rights which it is incumbent upon the majority to protect. This procedure cannot be carried on in a moral vacuum. It presupposed that the persons framing the rules have a morality and that persons in their dealings with each other have a morality. We shall now make some frank value Judgments. The inequalities between persons having their origin in endow ments bestowed by Nature must be taken as a datum. Having done this, the most sensible procedure for a society is to make use of those qualities with which men are endowed. This means that each individual must be permitted to develop himself to the fullest extent possible, that he may for his own fulfillment become those things of which he is 32 capable, and that society may benefit from the fullest use of all its resources. The right of am individual to self development is subject to the right of evexy individual to do the same• This principle is particularly appropriate for the highly interdependent modern industrial society in which all members of the economy must have access to the produc tive process in order to live. The ultimate distributive injustice is to be denied access to the productive process. This has sometimes happened in the most depraved of politi cal organizations— the totalitarian state. If the ultimate economic injustice is to be excluded from the productive process, then exclusions by degrees axe simply lesser instances of distributive injustice. The rules under which Individuals are prepared for and admitted into participation in the economic order must be such that they give to each person the right to partici pate fully, subject to the limitation that no other person*s right to do the same is diminished. This would not, nor is it intended to eliminate Inequality in income distribution, but all cases of inequality must be justified on the basis that they contribute to the total good. Some examples of justified inequality are given in the dissertation. As to the determination of the appropriate ways in which individuals individually and collectively pursue their 33 goals, the author believes that a situational ethic is well-suited to the implementation of Justice in a problem solving community. Situationism is not incompatible with the idea of a universal Good, but it looks for what is good or just in each particular situation. It is not an ethic upon which to build an enduring society, but is one that can be used in a going society that has no question of meeting the test of viability, but which must negotiate sometimes painful and bewildering changes in the short run. The "eclectic theory" outlined here is the author's conclusion from his investigation. It has been gathered together from several sources in economics and ethics. The author hopes it forms a coherent whole. Without completely deserting the field of economics for wholesale moralizing, the procedure outline here summarizes what the author hopes will be at least a moderately significant way of regarding the problem of distributive justice. CHAPTER II THE PROBLEM OP DISTRIBUTIVE JUSTICE A distributive problem, in the ordinary sense of the word, exists when there is distribuend (income) and two or more distributees (persons). Suppose that Adam Smith and David Ricardo live in a two-man econony. Their distribu tive problem is shown by the equation: I * Ia ♦ ^ i where If t and Id are the shares of the aggregate income, I, which could go to Adam and David, respectively. Obviously, the problem introduced here is based on the economic problem— scarcity— but it is more than a prob lem of positive economics; it is a problem involving ethics. Figure 1 shows a set of possible income distribu tions between Adam and David. The outside limit is shown by II, an "income possibility curve," which is a function of the resources and the available technology within the economy at a given time. Six different possible distribu tions are shown. Those points lying within II depict 0 Income FIGURE 1 INCOME POSSIBILITY CURVE 36 instances of employment Inefficiency. Regardless of the disposition of income between Adam and David, distributions di+» dij, and d£ indicate malfunctioning of the economic sys tem. Economists may condemn these distributions as repre senting inadequate solutions of the economic problem. Distributions d^, d2> and d^, lying on II indicate that the economy is fully employing its productive capabili ties. This part of the distributive problem in positive economics appears to be solved. Whether the allocational problem— another problem in positive economics— is deemed to be satisfactorily solved depends upon the making of a value judgment. The value judgment customarily made in economic theorising is that of consumer sovereignty— that people ought to get what they want. In the light of this value judgment, economic analy sis declares that resources are correctly allocated when the marginal revenue product attributable to a factor of production is equal to the cost of the factor. Similarly, goods and services are held to be efficiently allocated among consumers when the price of each good or service is equal to the marginal cost of its production. Some full- employment distributions may be inconsistent with alloca tive efficiency. In addition to whatever problems In positive econom ics may be present in the above diagram, an ethical problem 37 exists at any of the six points, for they Indicate six possible ways in which the total income of the community could be apportioned between Adam and David. The ethical problem considered in this dissertation is that of justice in the distribution of income, namely how income ouaht to be distributed. The way in which society feels that income ought to be distributed may be quite instrumental in deter* mining how income is distributed. Thus, the question of "ought" is an immensely practical one. Suppose we make the value judgment that whatever the distribution of income, it ought to take place at some point on II. The "ought" as used here is a recommendation for efficiency in the economising process. We are assuming that the economy should function at full employment and with full utilization of all its resources. But once we have moved to the curve, it is a natter of profound impor tance to Adam and David whether the distribution takes place at d^, d2* or d^. What criteria should we use to decide whether dis tribution should occur at d^, at which there will be much for David and little for Adam, or at d^, at which there will be much for Adam and little for David, or at d2, which la an equailtarlan distribution of income. There are many criteria upon which the decision could be made: productivity, need, age, custom, birth, 38 rank, inheritance of property, Inheritance of mental or physical ability, heroism, ability to make use of the income granted, effort, and many others. Over time, has tried a number of these criteria, usually in combina tion. Some of them have been given more use than others. Hone of them ever has been regarded as wholly satisfactory. This is the problem of distributive justice. Although temerity is probably the chief requisite for producing another work on distributive justice, inasmuch as the problem has been essayed a countless number of times by numberless economists, philosophers, and theo logians, the matter of distributive justice remains a lively issue. To the author's mind, justice is the problem of the economic and political order. A recurrent battle examined in the pages of this dissertation is the perennial controversy between the adherents of positive economics and the protagonists of a normative study. Any work dealing with justice or ethics is open to the spurious criticism that it is not "scien tific Ethics, it is commonly charged, deals with values, and value judgments are not capable of objective demonstra tion. Detractors of normative studies often object to investigations which they feel are founded upon matters of value rather than upon matters of fact This is partially lfhis matter is examined at considerably greater length in Chapter IT. true, but it ie no less true of what is cononly called "science •" All science rests upon nonscientlflc, nondemon- strable propositions; knowledge ultimately must be a matter of faith. Science assumes that the world exists; it assumes that we can know the world, that this knowledge of the world is capable of reception through our senses • finally, science makes the heroic assumption that knowledge is good, that it Is worth the effort to acquire it. Kane of these assumptions can be proved. The scientist takes them on faith. Whether the scientist is conscious of them or not, these nonsoientlflc assumptions are inescapable, clearly demonstrating that the roots of science lie in philosophy. and that, therefore, science involves specula tive as well as ■nalTtlcal elements. This dissertation will not solve any problems of distributive justice. Injustice is man's inseparable com panion. Despite all of the progress that has been made in man's quest for the just, a large segment of the population of the United States is, at the time of this writing (1963X engaged in a most fundamental struggle for justice. Ko one, including the author, is under the illusion that perfect justice is, in this life at least, attainable. Mankind is not likely to destroy himself if he does not find it. Tet this "impossible ethical ideal" has relevanoe in that man is quite likely to come to a sorry fate if he falls to press the search for justice, or if he attempts to withhold it from his fellow human beings. If any of us as individuals are interested in continuing to live as men, especially to live in dignity9 peace, and honor with our fellow tellurians, it is incumbent upon each of us to be as passionately devoted in try in* to find justice for others as we are for ourselves. Is this not the essence of jus tice? CHAPTER III MARGINAL PRODUCTIVITY THEORY AS A THEORY OP DISTRIBUTIVE JUSTICE I. THE SEARCH TOR ULTIMATE VALUES Among mankind'a intellectual pursuits, probably none stands higher than the quest for ultimate values. There is not a major philosophical system indigenous either to West or East lacking pro pounders engaged in the old and cease less contemplation of truth, beauty, temperance, justice, joy, and the other basic but eternally elusive verities. Reflecting, then, upon man's mlllenial and relentless attempt to give meaning to vague but highly important abstractions, it would seem that man ought to be pardoned when, for a tine, he has believed that he has found a fin ite or a short-cut answer to a question dealing with one of the ultimate values. Por a short while subsequent to its "rediscovery," the marginal productivity theory seemed to offer the promise of an answer to a portion, at least, of the ageless prob lem, "What is justice?" As an economic theory, it was not expected to be a comprehensive theory of justice; it was *f2 offered only as an answer to a problem of justice in the economic sphere of human existence— the economic due of a person • The proponents of the marginal productivity theory as a theory of distributive justice believed that the theory revealed the economic worth of a man. If one received the monetary equivalent of his worth, he was rewarded justly. On the basis of this reasoning, the marginal produc tivity theory was transformed from an explanation of dis tributive shares into an ethical justification for them. This elevation from a mundane economic principle to an ethical criterion was not without penalty. Some economists, philosophers, and social reformers who objected to the existing scheme of income distribution were led in their opposition to deny the marginal productivity theory both as an explanation of and a justification for income dis tribution. Other authorities felt bound to accept the theory as an explanation of income shares but were unhappy with the indicated apportionment. Unfortunately, the mar ginal productivity theory as an economic principle suffered at the hands of those who saw, to some degree, something normative in the theory. As a result, a number of econo mists— Paul Douglas is an example— had to devote consider able effort to the rehabilitation of the theory as a useful **3 and purely positive economic principle."** Historically, there have been a number or interest ing and diverse reactions to the marginal productivity theoxy. One group of economic scholars avers that the theory of marginal productivity is a theory of factor demand. Another group accepts the marginal productivity principle as an explanation of distributive shares. Within this latter group, are found those who approve of the ethi cal implications of the theory, and, emboldened by a "scientific proof" of their deepest personal convictions, they have offered the theory in support of the rightness of their thinking. A probably smaller group has accepted the theory as both an economic and ethical principle, but they dislike the implicit ethic and protest it. One last group, probably fearful that the theory does indeed prove a detested ethic to be correct, have been led to denounce the theoxy from every point of view. Today, the view most cur rent among economists is to show varying degrees of enthu siasm for the theory as an explanation of distributive shares but to hold that there is no or very little ethical content in it. The Purpose of This The purpose of this chapter is to consider the ^Paul Douglas, The Theory of Wages (Hew York: The Macmillan Company, 193^)• theories of distributive justice promulgated by those econo* mists whom we shall call the "marginal productivity ethi- cists." Although a number of economists and noneconomists have subscribed to the ethics of the marginal productivity principle with varying degrees of enthusiasm and understand* lng, the economists John Bates Clark, Thomas Nixon Carver, and William Smart were unquestionably the leading figures in the attempted metamorphosis of a positive economic prin ciple into an ethical precept. Accordingly, this chapter examines the foundational work of these three men and then turns to a consideration of more recent contributions to the literature of distributive justice. The concluding portion of this chapter will develop the author’s conten tion that these later works, although they represent impor tant modifications, are essentially rewoxkings of the original thinking of the older marginal productivity ethl- cists. The chapter immediately following the present one is an attempt by the author to appraise critically the theo ries of distributive justice founded largely on the margi nal productivity principle. Prior to examining the marginal productivity ethic, it will be necessary to develop an understanding of the principle of marginal productivity and its place in economic theory. * f 5 II. THE THEORY OF MARGINAL PRODUCTIVITY Many influential doctrines of distributive justice rest rather shakily upon the cornerstone of the theoxy of marginal productivity. This statement is not meant to reflect adversely upon a powerful analytical tool of posi tive economics. Rather it is meant to serve as an intro duction to a discussion which centers upon the proposition that the theory of marginal productivity is an inappropri ate foundation upon which to erect the edifice of distribu tive justice. This section is not intended to serve as an exhaus tive textbook on marginal productivity theory. Its purpose is restricted to providing a background for the discussion and criticism of those treatments of distributive justice which owe their existence to the theory of marginal produc tivity. Historical Development of the Marginal Productivity theory Jnhann Heinrleh Ton Thifoen (1783-1850). Although historians of economic doctrine often accord the accolade for the discovery and development of the marginal produc tivity principle to Johann Heinrich von Thunen, fairness and accuracy require the mention of the Irish economist Mountifort Longfleld (1602-183*0 who, prior to von Thunen*s discovery worked out a crude application of the marginal productivity principle to the determination of the interest rate. Continued fairness in the scrutiny of the historical record indicates von Thunen* a apparently complete lack of Longfield's pioneering work, and therefore it would seem reasonable to conclude that the Austrian's work is an original contribution. In hi8 Per isolirte Staat. von Thunen enunciated a theory of distributive shares using the marginal principle. Authorities generally agree that von Thunen is to be credited as the originator of marginal productivity 2 theory. Arthur H. Leigh, in his essay on von Thunen, says: "He is original in developing an explicit general application of the marginal productivity concept to the theory of distribution."^ Von Thunen*s "just wage. * * More to the discredit of later commentators than to von Thunen, was his later involvement with the well-meant but unfortunately absurd "just wage" formula which has served to obscure the real contributions of this pioneering economist. Ibid.. p. 3k. 3A r t h u r H. Leigh, "Von Thunen*s Theory of Distribu tion and the Advent of Marginal Analysis," Essays in *>ypyfat. eds. Joseph J. Spangler and William R. JLilen (Chicagoi Rand MeVally * Company, I960), p. 553* b7 It is significant to note that the theoxy of Margi nal productivity and the use of the theoxy in a doctrine of distributive justice had an approximately simultaneous birth. Von Thunen developed a theoxy to explain the dis tribution of income to the factors of production and, at the same time, offered a simple formula purporting to show what wages ought to be. This formula is written w * ■ > ( T p , where w is the wage rate, a is the subsistence level of income of the worker and his household, and £ is the aver age value of the product produced by the two factors of production, labor and capital. The workers* wages must be sufficient to allow them to subsist and to reproduce their own kind. The worker, von Thunen argued, produced an anoint over and above that necessary to maintain himself and his household and to perpetuate the race of workers; this fact is mirrored in £, the value of the value of the product which labor, in combination with capital, produces. Von Thunen assumed that workers want to maximise their incomes; this income he represented as (a ♦ y), where y is h a surplus which can be invested. The wage, w, is the ‘ ♦ibid., p. 563 bQ quantity (a + y) maximised under the constraint that those who supply capital are likewise fairly treated. The rational aim of society is to maximise its total incone. The natural impulse of the particJ in an econony is to maximize their own personal incomes. But the moral impera tive is to divide the total income fairly, allowing all contributors to the productive process to participate in the fruits of their joint economic endeavor. Thus, with respect to all economic producers, von Thunen attempted to find a value for y, the investlble surplus, at which aggre gate Income will be a maximum. He solved the resulting naTinum condition for the wage rate which yielded the equa tion w = Y aP • The ideal wage is the geometric mean of the workers * sub sistence requirements and the average product of a working household assisted by capital. It is interesting to note, in passing, that the complementary distribuend, interest, is given by the formula s * £\j~ap - a)/aq, where s is the share going to capital, and £ is the number of units of capital employed.^ 5Ibld.. p. 565 b9 In a general sense, von Thunen * a mathematical state ment of justice must fall for the same reason that other and later theories of distributive justice have failed. They Include no ethical norms. A value conclusion cannot be obtained from valueless premises. Maximisation of Income is really an Insufficient ethical premise, and yet it persistently appears in current discussions of the ethics of distribution. Moreover, we should note the vagueness of £, the subsistence wage of labor, and j>, the average pro ductivity. These terms are too imprecise to yield a con clusion most generously interpreted as saying anything more cogent than that labor must get enough to persevere and that it ought to share in any surplus as well. Yon Thunen was a methodologist of first rank. It is regrettable that he should be remembered for his excursion into a mathematical fantasy, when he should be lauded for the proper use of mathematics in economics in an age in which mathematical analysis was little, if at all, under stood.^ Yon Thunen*s momentous contribution never really was incorporated into the body of economic thought. When the marginal productivity concept was finally introduced into economic theoxy, in the last part of the nineteenth century, ?Ibid., p. 573* 5o it represented the efforts of men who presumably were com pletely unaware of the theoxy lying latent in the pages of Bar isolirte Staat. Thus, the rediscoverers of marginal productivity theory were as ignorant of von Thunen's work as the Austrian had been of the earlier work of Mountifort Longfield, The Marginal Productivity Theory of John iSates Clark Clw-7-lw^B) A number of pioneer economists are closely asso ciated with the development of marginal productivity theory. In the United States, no one is more intimately linked with the concept than is John Bates Clark. In 1902, Clark published his famous work The Dis tribution of Wealth in which, for the first time, he set forth his analysis of distribution based upon the marginal 8 product of the several factors of production. As a young man, Clark had encountered the works of Henry George who, in his Progress and Poverty, had declared that wages were fixed by the product of a tiller on rent- Q less land. George's theory inspired Clark to devote his attention to the possibility of finding a principle which ®Jobn Bates Clark, The Distribution of Wealth (New Yorks The Macmillan Company, 1927) . ^Henry George, Progress Poverty (50th Anniver sary edition; New Yorks The Modern Library, n.d.), p. 219. 5i would explain the determination of the wage-share and which, at the same time, would separate the product of labor from that of the other contributing factors* In this way, each share could be separately identified.10 In his Distribu tion of Wealth. Clark developed the marginal productivity method to accomplish three objectivess (1) a clear explan ation of income share determination, (2) the separation of the product of the factors, and (3) the freeing of the problem of share determination from reliance on agricul ture.1^ Clark's task is described in his own words: Is there a natural law according to which the income of society is divided into wages, interest, and profit? If so, what is that law? This is a problem which demands solution. 2 He answered the first question in the affirmative by con cluding that wages are indeed adjusted by a deep natural law operating amidst the seeming confusion of the labor market.1^ . . . where natural laws have their way, the share of income that attaches to any productive fun^jtion is gauged by the actual product of It e 10 Alan M. Cart ter, Theory of Wages Employment (Homewood, 111.* Richard ft. Irwin, Inc., 1959), p. 12. Hciark, op. cit.. pp. 97-98. 12Ibid., p. 1. !3lbid., p. 2. l4Ibid. 52 Under free competition, each factor tends to receive as Its reward that which It creates Clark*a analytical method. In the real (dynamic) world, the Clarkian theory comprehends that income will be distributed as wages, interest, and profits. However, for the purposes of his analysis, Clark adopted the methodologi cal device of postulating a static economy. A later and— one can easily believe— a most insistently intentional mis understanding of Clark's use of the static state generated and maintained much futile and absurd controversy. Clark never indicated that he believed that the real world was in any way static. Clark did feel, however, that the static forces in the world predominate. As an analogy, he Sug gested that, although the ocean is marked by often violent surface turbulence, still the static forces prevail, so that one can speak meaningfully and with considerable accuracy of sea level.^ With the Cl&rklan assumptions of a perfectly competi tive static economy in equilibrium over the long run, there would be no entrepreneurial function; the only income shares would be those of labor and property. Thus, in Clark's theory, the two productive factors are social labor 1^Ibid.. p. 3. l6Ibid.. pp. bOO-b03. and social capital, Clark included land in his concept of capital along with the produced means of production. However, in order to provide the homogeneous units needed for the analytical demonstration of his theory, he transformed capital into a highly abstract and extremely mobile fund. This fund is Msoclal capital." It is the sum total of all that society has invested in nonhuman productive factors— the whole of the productive wealth of an economy less labor units sup plied by human effort. Social capital has no specific 17 physical form. Social labor, the other factor, is the supply of 18 « human energy available to an economy. The qualitative differences between different grades of labor are elimi nated for the purposes of analysis by the use of homogene ous labor units. A labor unit is that work performed by a representative, untalented, unskilled laborer. Thus, the productive effort of a laborer with more than this funda mental unit of ability, whether teamster or physicist, arises from the simple possession of more units of labor 19 power. The use of homogeneous labor units permits a 17Ibid. l8Ibid.. pp. i f 5, 157-172. 19Xbid.* p. 63. 5*f discussion of "the” wage rate to be meaningful. "The” vage rate is the reward of the basic social labor unit.20 Actual wages— higher or lover— simply represent premiums or discounts awarded by the market to a laborer possessing either more or less productive capacity than the basic social labor unit. In an exactly similar way, the return 21 to social capital is derived. Clark used partial equilibrium analysis; one factor is held constant while the other is varied. Ho difference in result arises whichever factor is varied; their respec tive income shares are the same. For example, the wage rate for the economy is deter mined by the interaction between the marginal productivity of labor and the supply of social labor available to the economy at any one time. The supply of social labor is regarded as fixed (perfectly Inelastic) at any one moment. If the supply of social labor to the economy is OL, as shown by the perfectly Inelastic supply curve LL, in Figure 2a, and the marginal productivity of labor is repre sented by * the wage rate will be OW, that is, each unit of social labor will receive OV units of product as its reward. ^Cartter, on. cit.« p. 15 ^Clark, o p . clt.. p. 135. 55 An exactly similar analysis is applied to the reward of social capital. In Figure 2b, the amount of social capital available to the economy is represented by OC; this is determined by the perfectly inelastic supply curve of social capital, CC. The marginal productivity of social capital is shown by curve MPC. The return to each unit of social capital is OR units of product. The amount of the reward of each factor is the same regardless of which fac tor is regarded as the variable and which is held constant. Thus area OLAR in Figure 2a Is equal to area OCAW in Figure 2b. They represent the same aggregate output. Similarly, the total return to each of the two factors must be depicted by equal areas in each of the figures. For example, the total income earned by all units of social labor is shown in Figure 2a to be OLAW which is equal in area to RAW in Figure 2b. The same principle applies to the return due social capital. The diagrams manifest one further contention of Clark, namely that the rewards of the two factors entirely exhaust total product. Clark made this assertion in the light of his extensive geometrical analysis and without recourse to purely mathematical methods. A number of later economists disputed Clark's contention that total product would be exactly exhausted by the total factor payment. This was the crux of the famous Madding-upN problem. Product R W MP 0 L Unit8 of Sooial Labor a +» I g W MP, C 0 Unit8 of Sooial Capital b FIGURE 2 THE MARGINAL PRODUCTIVITIES OF LABOR AND CAPITAL ON 57 Although little light was shed on the puzzle until the techniques of the differential calculus were applied to it, Clark's contention, under the assumptions he imposed, was shown to be correct. Two applications of the Clarkian marginal productiv ity theory. Clark developed a marginal productivity theory applicable at two levels of analysis. The first, that which we have just considered, is a theory of factor reward. The aggregate supply of a factor interacts with its margi nal productivity to determine the rate of reward. To the individual business firm, the rate of reward is a datum. The firm will adjust its employment of the factor to the marginal productivity of the factor to the flxm and the market imposed rate of factor reward. At the level of the individual firm, Clark's theory serves to explain the level of employment. The marginal productivity curve of a factor for a particular firm is that firm's demand curve for the factor. The firm takes the market determined factor reward as given and continues to hire or to discharge factors until the number of factors is such that the rate of reward to each factor is equal to the marginal product of the par ticular factor. Graphically, this can be explained by returning to Figures 2a and 2b and employing a different set of assumptions. Assume that MP^ and MPq show the marginal 58 productivity of social labor and social capital, respec tively, to the business firm. The rate of factor reward, OV units of product for social labor, has been set in the labor market. Social capital must be accorded OR units of product if it is to be employed by the firm. It will thus be profitable for the firm to hire OL units of social labor and OC units of social capital. Again, the corresponding areas indicating the total reward paid to all units of each factor employed by the firm must be necessarily equal. The explanation of why the profit maximizing firm hires that number of factors which will equate factoral marginal productivity and factor reward is quite simple. At any level of employment less than OL, it will pay the employer to hire more units of social labor, for each unit would add an amount to total product in excess of the amount of product with which the factor must be recompensed if its services are to be offered to the firm. At a level of employment beyond OL, any additional unit of social labor would add less to total output than the amount of product required for its payment. Thus the firm will have a definite incentive to employ OL units of social labor, the level at which the marginal product of the factor is equal to the market established rate of factor reward. The common statement that a factor is rewarded according to its marginal productivity means that the factor 59 receives the difference between what its employing firm produces utilizing a marginal unit of the particular factor in combination with all of the other factors, and what it would produce were the marginal unit of the particular fac tor not used in production. The marginal productivity principle, therefore, is fundamental to a study of income sharing on a functional basis. Paul Douglas has illustrated the practical conse quences of this point: . . . if the aggregate share of labor is increased, it can only be at the expense of a larger loss to other factors of production. In like manner any gain that a particular group of workers may make by restricting their services must be at the expense of a more than equal loss to other factors 2p of production and other groups of workers together. Intra-Marginal Exploitation Frequently, those unacquainted with Clarkian margi nal productivity theoxy intuitively conclude that the intra-marginal resource owners are "exploited" in the sense that they do not receive the marginal product of their fac tors. This erroneous thinking can be explained with the aid of Figure 3. Suppose that OL units of social labor are employed by a firm; the marginal product of social labor would be LB. This is the amount of product that the resource owners would be paid if the factor is rewarded ^Douglas, op. clt.. p. 66 0 L L' Units of Social Labor FIGURE 3 INTRA-MARGINAL PACTORAL UNITS according to its marginal productivity. Now, if employment is expanded to OL*, the marginal product of the factor falls to L*A. According to the theory of marginal produc tivity, the Lth unit of the factor will now receive L'A units of product as its return— the same return as that due the L'th unit, and in consequence the Lth unit of the fac tor will be deprived of FB units of product which it would have received were it not for the unfortunate fact that the firm expanded employment by LL*. Indeed, following this argument, one might say that all resource owners up to the L'th unit are exploited by the nonreceipt of an amount of product equal to the shaded area EAC. This view, of course, overlooks the claim of the complementary factor to a share in the total income, its total share being the shaded area. However, the major objection to this faulty view of Clark's theory is that Clark specifically avoided the problem by defining all the factors as homogeneous. It is impossible to tell which unit is the marginal (L'th) unit. All units of the factor are exactly the same. No unit has a claim superior to any other for a share of income. Obviously, there can be no differences in productivity between the several units of a homogeneous factor. Further, it is improper to allude to any differences in seniority between the units of the fac tor. The "marginal unit" is not a synonym for the "last" 62 unit hired. The most telling reason destroying the thesis of intra-marginal resource exploitation by the eaployer is that at this level of discourse we are speaking of the mar- ginal productivity theory as an explanation of the level of employment, not as a theory of factor reward. As we have noted previously, the employer merely takes the level of factor reward as a datum. Operating under competitive con ditions, the employer can do nothing about the level of factor reward. For example, the firm depicted in Figure 3 can hire all of the social labor units it wants at a rate of OE (= L*A) units of product. The height of OE— the real wage rate— is determined in the factor market, not by an individual eaployer. If the employer were to attempt to pay a rate of real wages less than OE, no units of social labor would be made available to the firm. There is no reason for the employer to pay more than OE because he can get all of the units of the factor he wants by paying that real wage rate. Moreover, paying a higher rate of real wages would put him at a competitive disadvantage vis-A-vis other firms. Factor owners and employers behave as economjc men. The Mar«>»V ~H Vi*»w of the Concept of WarmlwT Productivity Alfred Marshall held a somewhat different and more 63 restrained view of the marginal productivity principle than that advocated hy Clark. The British economist refused to call the concept of marginal productivity a theory, pre- 23 ferring to call it a doctrine. Marshall's counterpart of the Clarklan concept has come to be known as a theory of marginal net productivity. The word "net" is used in that Marshall's analysis involves an increase in output attributable to joint incremental inputs of labor and capital. Prom the increase in product arising from the increase in joint factoral input, Marshall subtracted the cost of one factor to determine the product of the other. The remainder so obtained, he called a mar- 2b ginal net product. Marshall's adoption of the idea of a marginal net product apparently derived from the criticisms of an out spoken and persistent critic of the marginal productivity theory, John A. Hobson, who scoffed at the technique of the partial equilibrium analysis, pointing out that in prac tice, it would be most unusual for one factor to be hired in isolation without necessitating other factoral readjust- 25 ments. Hobson's main difficulty seems to have been a 23xifr©d Marshall, Principles of Economics (eighth edition; Hew York: The Macmillan Company, 19**8)» P* 518. 2* *Ibid., pp. 51^-518. 'John A. Hobson, The Industrial System (London: Longmans Green ft Co., 1910), p. 110. 6k lack of mathemat ical training and a complete— perhaps will ful— misunderstanding of what economists were about. How* ever, after making a number of lengthy remonstrances with Hobson, Marshall nevertheless adopted the Idea of net pro ductivity, Incorporating the Hob son-suggested viewpoint that a change in output likely reflects changes in more than one factor. Thus if the product attributable to an increase in the factor under consideration is to be mea sured, a deduction must be made for the costs incurred in making the adjustments which hiring the factor entails. by Marshall upon the Clarkian marginal productivity theory was his Insistence that Clark*s work did not constitute a theory of wages but was a "doctrine." The problem is neither one of semantics nor pedantry. Marshall wrote: "This doctrine has sometimes been put forward as a theory of wages. But there is no valid ground for any such pre- 26 tention." However, he noted: But though this objection is valid against a claim that it contains a theory of wages, it is not valid against a claim that the doctrine throws into clear light the action of one of the causes that governs wages.2? Theory versus doctrine. The most telling blow made 65 A complete theory of wages, or of any factor return, requires that supply as veil as demand be considered. Clark, as we hare seen, included supply in his analysis by postulating that supply was perfectly inelastic, paying no further attention to this side of the market. Thus in Marshall's opinion, the Cl&rklan concept was a principle appropriate to a complete theory of factor reward but was lacking a most essential element of being that theory itself. Today, a compromise of sorts has been reached. Many of the Cambridge economists tend to follow the Marshallian example within certain limits. Hicks speaks of a theory of wages of which a fundamental part is the "law" of marginal productivity, and Robertson accepts substantially the sane position.^ However, the compromise centers upon viewing the Clarkian concept as a long-run theory and the Marshallian view as appropriate to the short run. 30 Robertson indicates that this is a plausible viewpoint, and Kaldor says that Marshall's marginal productivity p.. Hicks, Theory of Waites (New York* The Macmillan Company, 1932}, p. 202. ^Dennis H. Robertson, "Wage-Grumblea," Readings in the Theory of T— r— Distribution, eds. William Kellner and Bernard #. Haley(Philadelphiai The Blaklaton Company, 1951)♦ PP. 225-227. 3°Ibid., p. 226. 66 principle is recognized as a short-run theory in post- Marshallian Cambridge theorizing.3' 1 ' Mathematical Expression of the Marginal Productivity Theory Expressing the marginal productivity theory mathe matically not only helps to verify the conclusions reached by Clark using only geometry but recasts the principle into a more easily handled form. The Swedish economist Wicksell, in speaking of the theory, said, H. • .we must approach this subject from the standpoint of the differential calcu lus."32 The marginal productivity of a factor is the rate of change taking place in output as the input of the factor is varied, all other factors being held constant. Mathemati cally, marginal products can be expressed as partial derivatives. For example, the marginal products of labor and capital, respectively, are expressed: MP^ = aQ/aL, and MPC = aQ/aC. Since total product is the sum of the marginal products of the inputs multiplied by the number of the units of each 3 Nicholas Kaldor, "Alternative Theories of Distri bution,” Essays on Valu* and Distribution (Glencoe, Illinois: fne Free Frees, I960), P. 221. 32Knut Wicksell, Value. Capital, and Bent, trans. S. H* Fro we in (New Tork: Rinehart * Co., Inc., 195^), P. 25. 67 factor used, we find that using L units of labor and C units of capital, total output Q is: Q - L(?Q/?L) + CUQ/aC). The share of total product attributable to labor is L(9Q/pL), and that attributable to capital is C(?Q/?C). For any number of factors, total product is given by the equation: Q = AC?Q/*A) ♦ B(3Q/3B) ♦ C(9Q/9C) ♦ ... ♦ H(9Q/PH). This Is the mathematical statement of the Clarkian form of the marginal productivity theory, for the marginal product implicit in the above equation is the marginal physical product of each factor. It suggests that each factor owner can receive as its share of total, product that which its factor creates. The rather insubstantial problem of giving the factor owner the share of product for which his factor is responsible— when the nature of the product seems to make apportionment among the factors nonsensical— has given pause to a number of thoughtless persons. In a monetary economy, the mode of payment is to translate the physical product of a factor into a monetary equivalent— to give the factor owner the monetary value of hie factoral product. The "real product” form of the equation is readily adapt able to a monetary economy* Inasmuch as multiplying total 68 output by price gives the Monetary value of the productive effort of the factors, it is merely necessaxy to multiply the marginal product of the several factors by product price in order to obtain the monetary equivalent of their productive contribution. Thus* H - ♦ B §§♦... ♦»■£§>, where R, total revenue, is equal to PQ. Suppose a purely competitive firm has the production function R * PA(3Q/0A) + PB(3Q/3B). The expression PA(?Q/?A) is the value of the marginal prod uct of the factor A which the factor owner will take as his share since that is the value of the factoral contribution to the firm. Under nonpure competition, a factor owner cannot receive the value of the marginal product of his factor; rather he receives the marginal revenue product of the fac tor— the net addition to the revenues made by the firm 33 using the factor. The type of production function underlying the ^Further discussion of this fact is deferred until Chapter ▼ in which patterns of nonpure competition are con sidered. 69 theories of distributive justice discussed in this chapter is an example of a function mathematically described as being linear and homogeneous. If a production function is linear and homogeneous, the rule of "Euler * s Theorem" holds that a proportional change in the inputs of the factors will produce a propor tional change in output. Thus if the production function Q * f(LyC) is linear and homogeneous, then kQ ■ f(kl, kC) for any k, and."therefore kQ * kLCsQ/aL) + kCCaQ/sC). The economic meaning of a linear production function is that constant returns to scale exist. From this, it follows that proportionally increasing the input of the factors does not affect the marginal product of the factors. Therefore the relative productivities of the factors remain unchanged as long as they are changed in the same propor tions • This conclusion is applicable to the several theo ries of distributive justice discussed in this chapter. Many of the remedial measures proposed by the marginal pro ductivity ethic1sts center around the proposition that the attainment of a just distribution or of a distribution both just and acceptable depends upon altering the inputs of the factors such as to give an offended factor owner a "better" 3 The graph of the function described yields a straight line, hence the term "linear." In a homogeneous equation, all of the terms are of the same degree. 70 share of the total income. The usual foous of redistribu tive proposals is the factor labor. Most of the proposals examined in this chapter would solve the problem of a just and desirable distribution of income by making labor the relatively scarce factor. This viewpoint seems to place its emphasis upon psychic satisfactions. In the absence of feelings of envy, everyone could be made better off by increasing total product by whatever means are available, so long as everyone gets a bigger real income, although relative shares might be unchanged or some might even be less than before total product was increased. Hontinear production functions. If constant returns to scale are not present, a proportional change in inputs will not cause a proportional change in output. Under conditions of decreasing returns (increasing costs), the payment of the factors according to their margi nal productivity would not exhaust total output. The same situation has been found to be present under conditions of monopolistic competition. This condition is explored in that section of the chapter on exploitation which deals with the implications of the work of JSdward H. Chamberlin. Under conditions of monopolistic competition or with decreasing returns to scale, we finds JQ » (kl^. ♦ ko£.) , 71 where k is a proportional increase In Input* and J 1* tta* increase In output, tout J »> k. According to Dougina, tta* situation d*acrlb*d by tta* above In*quality would result In th* creation of large surplus profit*.^ In tta* one* of nonopolistlc coap*tltlon, a* distin guished from tta* simple case of decreasing returns, entry is not completely foreclosed. Therefore tta* situation would tend to toe self-correcting as new firms entered tta* industry competing away tta* at tree tire profits. The opposite case, that of increasing returns (decreasing costs), poses a more difficult problem. Under decreasing costs, nQ < ♦ kC-^»), where m < k. The sum of faetor rewards more than exhausts the combined total product of the factors. Th* mathematical content of the above inequality seemingly has little economic significance as Douglas has pointed out. 36 Tta* taesey losses occasioned toy operation under this condition would lead from competition to monopoly. Oarttsr be 11 sees 37 that the results would be "oh**tie.” These ebeereatlems 3^Douglas, on. olt.. p. 5. P. 55. 37Carttsr, am- ait-- 27. 72 suggest thst such a condition *— < M t > » t m i n , ia the long run, to ftotial MoaMle plMMMM. Vfcla M*tl« mm ansglaml productivity theory is intended to serve mm m background for tho consideration of those oMUCptt of distributive justice which are founded iaagely upon the theory. The validity of such concepts of distributive justice is open to attach upon eany grounds; not the least of these is the validity of the marginal pro ductivity theory itself as the basis for ethical doctrines of income distribution. The rationale for basing studies of distributive justice upon the marginal productivity theory is that the latter is taken to be a theory of income distribution. If this is so, it must be noted that the marginal productivity theory is not the only theory of income distribution in the body of economics. There is a serious question as to whether the mar ginal productivity theory is a theory of income distribu tion at all. We have already noted Marshall's disinclina tion to accept the theory of marginal productivity as a theory of wages. The Cambridge economist preferred to con strue Clark's concept as something less than a full-blown theory, but nevertheless was willing to accept the idea as an Important part of a comprehensive wage theory* Marshall 73 objected to the complete failure of the Clarfclan methodol- * ogy to consider factor supply. In this chapter, nothing has been said about the supply of factors, other than assuming with Clark the existence of perfectly inelastic factor supply curves. A description of the theory of marginal productivity is on the most certain ground when it defines the theory as a theory of factor demand. If we care to make the sweeping simplification, that we are not concerned with the deter minants of supply— that we shall take them as given— then, we can speak of the theory as one of income distribution. However, we must keep in mind the limitations which such a decision imposes upon our ability to study the distribution of income. Milton Friedman objects to the theory being con sidered as explanatory of distribution in these words: The "theory of marginal productivity" is some times described as a "theory of distribution." This is a misleading statement. The theory of marginal productivity at most analyzes the factors affecting the demand for a factor of production. The price of the factors depends also on conditions of supply. The tendency to speak of a "marginal productivity theory of distribution" arises because In many problems and contexts it is useful to think of the supply of factors of production as given quantities, as perfectly inelastic. This is par ticularly relevant if the problem concerns both market and nonmarket uses of factors of production. In such cases there is a sense in which supply con ditions determine only the quantity of the factors, while demand conditions (summarised in the phrase "marginal productivity") determine price. But note that even in this case a change in supply— in A the fixed amount of a factor— will change the price of the factor, unless demand is perfectly elastic. So it will be better in all cases to regard the theory of marginal productivity as a theory solely of the demand for the factors of production. A complete theory requires a theory of both the demand for and supply of factors of production. In all fairness to those writers on distributive justice who depend upon the theory of marginal productivity as the basis for their work, we must note that many of the later writers do consider the supply side of the factor market, although in the earlier works, we sometimes see an uncritical acceptance of the theory of marginal productiv ity as a theory of income distribution. In this chapter, we shall accept the particular view of the theory elected by each economist or author as a basis for our discussion, reserving such criticisms as would be made by regarding the marginal productivity theory as a theory of factor demand for a later critical chapter considering together a number of the various ethical prescriptions of the authors con sidered in the present chapter. III. JOHN BATES CLARK AND THE GENESIS OP ETHICAL CONTENT The imposition of ethical content upon marginal pro ductivity theory is commonly ascribed by modem writers to Milton Friedman. Price Theory (Chicago: Aldine Publishing Company, 1962;, p. 1?2. 75 the early developers and commentators upon the doctrine* Thus William J. Baumol writes: When the marginal productivity theory first achieved popularity just before the turn of the century, some economists attempted to use it as a basis for moral ising* It was even suggested that since the analysis shoved that every input was paid the value of its marginal product, the distribution of Income under free competitive capitalism must be morally right and just .39 The economist who seems to be most generally regarded as the prime marginal productivity ethiclst is John Bates Clark* Paul Davidson, for example, notes that marginal productivity theory which was "merely a theoreti cal refinement" in the early twentieth century came to have lfO "ethical connotations" at the hands of Clark* In the course of his lectures to graduate students in economic theory and doctrine at Columbia I&Llverslty, Professor Wesley Clair Mitchell said, In referring to Clark's work on the theory: • * * Professor Clark was able to draw the comfort ing conclusion that in society raid which works on the static model— observe thax— everybody gets an income which depends upon what he produces,— and that is just* 1 39william J• Baumol, Economic Theory and Operations m (Englewood Cliffs, Hew Jersey: PrentIce-Hall, ., J96l), p. 293. lf®Paul Davidson, Theories 9^ ^gprmfnatm Inoo— Pie- trlbutlon (Hew Brunswick* Hew Jersev: Bataers unlversiiv KeI2, I960), pp. 30-31. ^Wesley Clair Mitchell, Lecture l o t o s on Trees of Economic Theory (Hew York: Augustus If. Holley, 17*9', 76 Recently, Mark Blaug baa commented: J. B. Clark, the American founder of marginal productivity theory, regarded it aa a normative principle of diatributive justice, demonstrating that the retuma to productive agents are not sus ceptible to change by human action.*2 In the course of this section on Clark, the author will advance the argument that, contrary to the widespread opinion among economists, Clark possibly may not be pro perly classified as a marginal productivity ethioist. Clark*a Interest in Ethics That a strong strain of ethical thought runs through Clark's life and work cannot be doubted, for he had a con suming— a virtually metaphysical— interest in questions of ultimate values, and this interest he carried into his chosen discipline. Indeed, Clark's writings are often IfO described as having a strong metaphysical content. J Lewis V. Haney agrees that Clark's works bear a strain of mysticism, a view concurred in by the current writer on p* 123. These volumes were prepared from lecture notes taken down stenographies!ly by a student in Professor Mitchell's classes in Columbia University during 193*+~35. Professor Mitchell never assumed responsibility for the accuracy of the notes. * f2Mark Blaug, Scgnomij^The^ryjjB^'Hetrpspepjt (Homewood, Ul.s Richard P. Irwin, Inc•, l<?o£), p. * f 05. ^Miteholl, loo- oit- V. Haney, "The Sooial Point of View in S c o n o n l c s » f Economics. XXVIII (May, 77 * t 5 welfare econo alee Hla Myint. Clark's developing interest in ethical natters as a young productive scholar is convincingly shown in an early work, The Phl)?ofrp*\f of Wealth. This work preceded the more famous and certainly more important Distribution of Wealth in which Clark, as it has been said, with logical powers reminiscent of David Ricardo, rigorously demonstra ted the determination of the income shares of the produc tive factors. From the pages of the Distribution of Wealth. comes the ethical content which Clark is commonly supposed to have engrafted upon the marginal productivity theory. Mitchell, in his transcribed lectures, indicated a belief that the search for a philosophic justification of the economic order was the motivating force behind Clark's inquiry into distribution: John Dates Clark had grown up with an Interest in ethical and moral Issues at least as fervent as that which characterised Alfred Marshall. The problem that really concerned him most about economies, particularly in his earlier days, though his interest never waned perceptibly was the ques tion whether economic organisation as we have it now is really justified. ' if? His Myint, Theories of Welfare B e w e|y (Cambridge: Harvard University Press, 19*fo), p. 207• **^J. B. Clark. The Philosophy of Wealth (Boston: Ginn 4 Company, 1903;. **^Mitchell, on. cit.. pp. 123-121 *. 78 The Appeal to the Hatural Order To understand acre clearly what Clark was saying, It la helpful to consider hie view of the created order and ■an*a place In It, for It was to the natural order Itself to which Clark turned in his attempt to analyze the dis tributive process. Clark*s conception of the universe was that of an organic whole. Clark, says Lewis V. Haney, drew an analogy from the biological sciences in portraying 1+3 society as an organism. The preface to the Distribution of -th. besides providing a concise statement of the theme and conclusions of his work, clearly reveals Clark's belief in the exist ence and operation of a natural law and— more importantly— in the beneficence of the untrammeled functioning of this law: It is the purpose of this work to show that the distribution of the income of society is controlled by a natural law, and that this law, if it worked without friction, would give to every agent of pro duction the amount of wealth which that agent creates. However wages may be adjusted by bargains freely made between individual men, the rates of pay that result from such transactions tend, it is here claimed, to equal that part of the product of industry which is traceable to labor Itself; and however interest may be adjusted by similarly free bargaining, it natur ally tends to equal the fractional product that is separately traceable to oapital. At the point in the eeaaenlo system where titles to property origi nate,— where labor, and capital come into the posses sion of the amounts that the state afterwards treats ^auMjr, loo, oit. 79 as their own,— the social procedure is true to the principle on which It rests* So far as it is not obstructed, it assigns, to every one what he has specifically produced,4-9 The problem of applying Clark's natural law, based as it is on the assumption of a static state, to a dynamic economy has been discussed previously in this chapter, but it is well to recall that Clark, with full cognisance of dynamic conditions, believed that static forces are pre dominant. Thus in the long run, market prices will tend toward conformity with the natural price. The natural price is tested by the familiar factor transference process of marginal analysis, that is, prices are natural or normal when the returns to the social units (as defined by Clark) are equal in every possible application. In this state, no factor can increase its income by transferring from one employment to another. With the factors completely mobile in the long run, a change in the derived demand for a fac tor is met by a realignment of factors in productive employments until the above-described equilibrium condition is again established* The evidence cited serves to assure us that Clark felt the workings of the natural order to be convenient, salutary, and hopeful— in general, agreeable. The natural order seemingly is in harmony with man's Interests. ^Clark, Th^ in■tributlo« U m * r± k r p. 8. 80 Whether Clark felt the system of factor rewards to be just requires further scrutiny. Clark*s View of Distributive Justice The essence of the distributive justice problem was comprehensively stated by Clark In the opening pages of his works The welfare of the laboring classes depends on whether they get much or little; but their atti tude toward other classes— end. therefore, the stability of the social state depends chiefly on the question, whether the amount they get, be it large or small, is what they produce. If they create a small amount of wealth and get the whole of it, they may not seek to revolutionise society; but if it were to appear that they produce an ample amount and get only a part of it, many of them would become revolutionists, and all would have the right to do so. The indictment that hangs over society is that of Hexplolting labor.** "Workmen1 * It is said, "are regularly robbed of what they produce." This is dons within the forms of lav, and by the natural working of competition. If this charge were proved, every rightmlnded nan should become a soolallst; and his seal in trans forming the industrial system would than measure and express his sense of justice. 50 The above passage, which is fairly representative of the Clarklan ethos, indicates that, in his own mind, Clark was generally convinced of the justice and benefi cence of an income distribution in large measure based upon the principle of marginal productivity. A few key lines in the passage are especially important as clues to his senti ments. The concept of "right" is, of course, important to 5°Ibld.. p. *f. 81 the Cl ark lan thesis. He spoke of the "right" of workmen to revolt against the existing order If they do not receive their produce in exchange for their labor. Their "right" to revolt can exist only if being deprived of a portion of their product is sonehov unjust. The existence of a "right?* sust lead to a speculation as to the source of that "right." On this natter, Clark wrote: Sights are always personal, and only a sentient being has claims, as only an intelligent being has duties. There is, then, no issue of right or wrong involved in the fact that wages, as such, fall from a dollar and a half a day to a dollar; but the tak ing of a half-dollar from the daily piy of each member of a force of sen, and the adding of it to the gains of an employer, raises between the parties a critical issue of justice or injustice. The ques tion is: Has the employer taken something that the laborer has produced? Exactly this issue is forever pending between industrial classes. Every day a definite amount is handed over by one class to another. Is this amount determined by a principle that humanity can approve and perpetuate? Sees it treat man fairly? The issue is personal; but it is settled by a knowledge of purely functional distribu tion. 51 The individual or personal right of which Clark spoke appears to be a simple property right— here proffered as a natural right, but actually bearing a strong resem blance to the property right peculiar to the slowly-evolved body of Anglo-American common law. The question of justice, as far as Clark was con cerned, seems readily reducible to a matter of pure property P. 7 82 right or property lav* The whole ethical issue of the valuation problem--a most serious problem— was completely sidestepped when Clark asserted that, "there Is, then, no Issue of right or wrong Involved In the faot that wages as such, fall from a dollar and a half a day to one dollar. 52 . . The possibility that profound moral issues may be Involved in a change in market valuation which causes wages to fall "from a dollar and a half to one dollar** is not a part of the ethical content of his scheme of distributive justice. Instead, the satisfactory solution of the dis tributive justice issue is gauged by an essentially Anglo- American jurisprudential property rights test. Tor as Clark said, . . . the taking of a half dollar from the daily pay of each member of a force of men, and the adding of it to the gains of an employer, raises between the parties a critical issue of justice or injustice .^3 As a theory of distribution, the marginal productiv ity theory purports to show the magnitude of the shares which are daily "handed over by one class to another." The ethical issue was raised when Clark asked, "Is this amount determined by a principle that humanity can approve and perpetuate? Does it treat men fairly?" 52Ibid. 53Ibid. Ibid. 83 That Clark believed that the answer to this question of justice was to be found within the principle of marginal productivity is indicated by his assertion that the issue is "settled by a knowledge of purely functional distribu- 55 tion." Be offered the marginal productivity principle as a rule conformity to which equitably solves any distribu tive issue existing between the productive classes and which, by Implication, if followed leaves men without a right to revolt against the system. The question of how a study of "purely functional distribution" aids in discerning justice was answered by Clark in this way: If eaoh productive function is paid for according to the amount of its product, then each man gets what he himself produces. If he works, he gets what he creates by working; if he also provides capital, he gets what his capital produces; and if, further, he renders service by coordinating labor and capital, he gets the product that can be separately traced to that function. Only in one of these ways can a nan produce anything. If he receives all that he brings into existence through any one of these three functions, he receives all that he creates at all. If wages, Interest and profits, in them selves considered, are fixed according to a sound principle, then the different classes of men who combine their forces in industry have no grievances against eaoh ether. If functions are paid accord ing to their produots, men are also. Hence, while rights are personal, the issue of rights that is involved in distribution is settled by a functional study. 5o ^Ibid.. italics mine. ^ Ibid.. pp. 7-8. 8V Apparently, than, the problem of justice, a» Clark defined it le "settled by a functional study•** Two criteria seemingly underlie Clarkian distribu tive justice: the Anglo-American common law understanding of property rights and the existence of a "natural" state of equity between the various productive factors in indus try. Distribution according to the principle of marginal productivity precludes any justifiable grievance between those, persons who have combined their efforts in the pro ductive process. Social Value Deep within the pages of The Distribution of Wealth. Clark did take up the question of value. He urged a con cept of "social value." This was in keeping with his view of society as an organic whole. Voting that value is a social phenomenon, he wrote: "Things sell, Indeed, accord ing to their final utilities; but it is their final utlli- 57 ties to society • An article partakes of valuation by being submitted to the judgment of "• • • society, the great composite consumer. ..." He added ”... each element has somewhere in the social organism the effect of fixing a part of the total value. In no other way can the 57Ibld.. p. 2*3 85 article, as a whole, get a valuation Later theories of distributive justice focus upon the social valuation process as the crux of the distribu tive justice problem. Clark’s s-frynd on the Issue of the Marginal Produc tivity Theory as a Doctrine of Distributive Justice An important question remaining to be considered is to what extent Clark actually promulgated the theory of marginal productivity as a theory of distributive justice* Despite the tenor of his writing, which certainly suggests his own personal conviction that he was enunciating a natural law that operates beneficently, the argument here is that there is a possibility that his expositors and com mentators have been too strong in their insistence that Clark actually offered his theory of distributive shares to the world as a full-blown principle of distributive jus tice. After seemingly proffering a natural law which happily cosports with economic justice, Clark indicated that he did not Intend to delve into ethical questions and, further, that the question about what is just in distribu tion was still open. We might, Indeed, go into a further and purely ethical inquiry. We might raise the question 58Ibid., pp. 2»fr3-2Mf 36 whether a role that gives to eaoh Ban his product Is, In the highest sense, just. Certain socialists hare, indeed, contended that such a rule cannot attain justice. Work according to ability and pay according to need, Is a familiar formula, which expresses a certain Ideal of equity In distribution. This rule would require the t*iri"g from some men of a part of their product, In order to beetow It on others who might be more necessitous. It would violate what is ordinarily regarded as a property right. The entire question whether this Is just or not lies outside of our Inquiry, for it is a matter of pure ethics. Before us, on the other hand, is a problem of economic fact. Does natural distribu tion Identify men's products and their gains? Is that whioh we get and which the oivll law enables us to keep really our own property by right of creation? Bo our actual estates rest from their very beginnings, on production?-*? The above passage serves to cast some doubt upon the popularly accepted contention that Clark was offering his theory of distributive shares to the world as a definitive statement of the principles of distributive justice. At the outset of the paragraph quoted, Clark noted that fur ther exploration into the ethical issue could be made, indicating that he by no means felt that he had exhausted or Intended to exhaust the subject. The provisional state of his ethical pronouncements is manifested in his state ment, "We might raise the question, whether the question, whether a rule that gives to each man his product is, in the highest sense, just."^ ^Ibid. . p. 8. ^Ibid. Italics added to emphasise the subjunctive mood. 87 He no ted, whether approvingly or not, the existence of other ethical standards: Certain socialists have, Indeed, contended that such a rule [the marginal productivity ethic] can not attain justice. Work according to ability and pay according to need, is a familiar formula, which expresses a certain ideal of equity in dis- tr ibut ion • Clark did, therefore, admit of the famous socialist ethic which holds as just rewards on the basis of need. He noted m further that this canon does express one view of an ethical ideal. The "mixed economies" of today*s world show the simultaneous existence of both of these distributive stand ards, possibly demonstrating an acceptance of some combina tion of them as just by contemporary society. The "taking from some men of a part of their product, in order to bestow it on others who might be more necessitous," is the non of currently practiced governmental social welfare policy. That Clark felt that this would violate a property right manifests more clearly the applicability of the marginal productivity principle to a given (and widely accepted) property norm rather than saying that the theory reveals a fundamental natural right. The influence of the moral ethos of Clark*s time is clear- In the more than half a century that has passed since Clark worked out the marginal productivity theory, American social opinion has 61Ibid 88 been lees inclined to Ylev the taking of a part of one ■an's Inc one in order to giro it to another as a violation of a property right. The criterion of aor&l rightness of the present governmental redistributional activity is cer tainly such closer to need than to contribution. The final evidence for the contention that Clark was not propounding an inexorable aoral precept is found in his stated intention not to deal with further comparisons of possible distributive norms. Heferring to the socialist rule (as compared with the productivity rule) he said: "The entire question whether this is just or not lies out- 6 p side of miT* inqniry1 for it is a matter of pure ethics." This disclaimer shows that Clark, regardless of how he felt in his own mind, realized that questions of ethics cannot be solved within the framework of purely economic analysis, that is, the marginal productivity principle cannot be con clusively proved as an ethical precept. The matter is, as he said, one of "pure ethics." The question Clark saw is one of fact. Hoes the "natural principle" lead to the Identification of factoral products and corresponding rewards? He asked yet another question: "Is that which we get and which the civil law enables us to keep really our own property by right of creation?"^ The ethical content ^Ibld. Italics added for emphasis 63ibjd. of this question is not settled by the Marginal productiv ity principle but must be referred to that amorphous body Anglo-American sociological, religious, and philosophical thought which is the common law of Great Britain and her jurisprudential heirs. The marginal productivity theory, then, comes to be conceived of as an economic "quantitative analysis" that enables economists to test for the origin and apportionment of product shares arising from the pro ductive process— shares which the deepest roots of our cul ture have led us to regard as a man's "property" and which are protected by our great customary and evolutionary body of law. The main theme of this study of Clark's development of the marginal productivity theory is not that Clark believed the theory to be devoid of ethical content; on the contrary, the evidence is overwhelming that he did believe the marginal productivity principle to be both a positive and normative doctrine. Further, numerous state ments indicate that he felt the principle to be in harmony with the natural order, and that its working, on the whole, was beneficent. Clark's belief in the beneficence of the natural economic order is more fully evidenced by his prediction of an optimistic future for the position of labor. Entre preneurial Innovations naturally occurring in the free 90 enterprise eye tee, will, he felt, give rise to higher profits, which by reason of the thus higher marginal pro duotivi'ty of labor, will be eventually transformed into higher wages. Even as the entrepreneur searches relent lessly for profits, wages are, by his action, Inexorably increased. In Clark's own words: . . . statis theory . . . shows that, however great may be the profits, wage -earners will in the end get the lion's share. The vast sums that to-day are accruing to the rich, who do the marshalling of the industrial line, are bound, under static law, to add themselves with an increase to wages and interest. They add themselves, moreover, chiefly1 to wages. By the time that they have done this, Indeed, gains from new sources will be accru ing to the captains of industry, so that there will always be profits. But this gain will not for long be obtained from any one source, for if we can identify the profits of to-day. we shall have some thing that statlo law will claim as its own and will by to-morrow, as it were, make over mainly to labor ers and to the owners of the tools of work.*"* ^ Conclusion The contention developed in this section on Clark's work Is that Clark stopped considerably short of offering the marginal productivity theory as an ethical proposition. This is shown by his identifying a discussion of how income ^Ibid., pp. »fll-lfl2. ^^Thls position contrasts markedly with the more recent -th-twfr-iTig of Louis V. Kelso and Mortimer Adler who feel that the position of labor has and will continue to deteriorate unless a so-called "capitalist revolution" occurs. The ideas of these two writers are discussed in a later section of this ohapter. 91 ought to be distributed as an ethical Issue which was act comprehended in the scope of his inquiry and by his recog nition of at least one other normative criteria for the just distribution of income• Certainly, Clark did not go nearly as far in promulgating the marginal productivity theory as a theory of distributive justice as did his con temporary Thomas Nixon Carver. We shall now turn to a dis cussion of the work of this notable contributor to the literature of distributive justice. IV. THOMAS NIXON CARVER AND THE ATTEMPTED DEFINITIVE STATEMENT OF SOCIAL JUSTICE By no means was John Bates Clark the only economist to consider the ethical implications of the marginal pro ductivity principle. Largely contemporaneously with Clark— In the late nineteenth and early twentieth centuries— a number of distinguished American and British economists were intrigued by the connections, of varying degrees of perfection, which they thought they saw between the margi nal productivity theory and distributive justice. The most definitive work in this area and of this period is that of the American economist, Thomas Nixon Carver. Thomas Carver (1869-1960) Thomas Nixon Carver wrote at a time when the margi nal productivity theory was being hailed as a major 92 analytic tool as its "re-discoverers" in Europe and America published the fruits of their curiously simultaneous think ing, The than recency of the theory plus Carver's great interest in sociology undoubtedly accounted for his con* siderable work in the field of economic ethics. Carver taught and wrote on both economics and sociology as a pro* fessor in Harvard University. During his long tenure as a member of the Harvard faculty and during a most remarkably long and productive life, Carver published a number of works on distributive ethics, his most outstanding being his Essays Justice An unusual aspect of Carver's attack upon the prob lem of income distribution is his tendency to view the just 67 solution in terms sympathetic to the entrepreneur. This is in marked contrast to many other treatments of distribu tive justice which are rather laborlstic in sentiment. The Conflict between Man and Nature Although there are many similarities between the views of Carver and Clark, the strain of philosophic ideal ism so implicit in Clark's thought is nowhere in evidence ^Thomas Mixon Carver, Eaaara Sneiai Justice (Cambridges Harvard University Press, 1915). 6?Lewis 7. Haney, * + TZn^rtnmi r > Thought (fourth and enlarged edition; sew Torkt fhe Macmillan Company, 19^9), P* 89^-. 93 in Carver's thinking, Man, said Carver, is out of harmony with nature, tfature is not beneficent, This, he noted, is what the economic problem, particularly in our time, is all about. The pervasive Influence of social Earvin lam, so popular in the age in which Carver was working, is quite apparent. In the struggle for survival, all species, including man, must adapt. On this point, in another book, Carver observedi The human struggle for adaptation takes the form of a vast, united effort to increase the supply of those things whereof nature has pro* vlded an insufficient supply, .This is what industrial organisation means Ethical Considerations Carver often confronted the problem of defining "justice," "social justice," or "distributive justice," His definitions and tests usually are economically oriented. For examples Justice is that system of adjusting conflicting interests which makes the group strong and pro* gressive rather than weak and retrogressive whereas injustice is a system of adjusting con* flic ting Interests which makes a nation weak and retrogressive rather than strong and progres sive. HeIterating this idea, is his test for just conditions in 68 Thomas Mixon Carver, The Distribution of Wealth (Few forks The Macmillan Company, 1925;, p.10*. ^Carver, Essays in Social Justice, p. 30. 9V a sir*n society: . . . where a nation ia actually progressing, where it is improving its material condition, where its people are uniformly satisfied with the treatment they receive, where the arts and sciences are advancing, and all the other earmarks of genuine progress are present, there is a strong presump tion In favor of the proposition that justice pre v a i l e d Tet he expressed other than economic views of justice with such sentiments as, "Justice is only sympathy with a long look,"^- and "Justice is mercy writ large."^2 The problem of social justice, he indicated, involves the role of the state in adjusting the state of conflict of man versus nature and nan versus man. On what principle or principles, according to what rules, shall the state control and discipline its members and adjust their conflicting inter ests, protecting some and restraining others. That is the problem of social justice.'3 Morality is a natter of survival. The proper course of conduct, therefore, is to engage in activities which 7U- make a people strong. Conversely, any activity which entails the waste or dissipation of human energy is 70Ibid. pp. 29-30. 71Ibid. P. 321. 72Ibid. P. 292. 73Ibid. P. 9* ^Ibid. pp. 31-32. 4 75 immoral. 95 Justice versus charity. With this concept of Moral ity, it is not surprising that C&rrer felt that a real dan ger to society existed in the growth of benevolence. Benevolence has a negative value; it is inoral when it 76 becomes sufficiently overabundant to result in laziness. Thrift and enterprise are key virtues not to be imperiled by would-be (and false) social reformers and 77 their programs. Carver's feelings about morality are important in that they account for the distinction he made between justice and charity. Allowing those too weak to support themselves to survive at the sufferance of the 78 state is not justice; it is charity. Carver's conception of the Darwinian "survival of the fittest," is not the law as observed in the subhuman world. In society, the strong are those who are economically productive. The duty of the state is to keep the weak— the economically unproductive— from interfering with the mission of the strong. The strong are engaged in a socially benefloial function, and they must be allowed to reap the rewards of their work 7^Ibld.. p. 276. 76Ibid.. p. 8*fr. 77Ibid.. p. 260. 78Ibid.. p. 103. 96 without being subjected to confiscation for the benefit of the weak. The clain of the weak for survival is one of 79 grace, not of right. Despite the basic these of natural disharmony which pervades Carver's thinking, there is a possibility for social welfare and economic activity to be in harmony. When people know what they need, when desires and needs coincide, then, said Carver, social service and business 80 are the same thing. Carver's predilection for the "economically produc tive" should not be construed to be a plea for power and privilege. Carver castigated the rich and condemned monopoly: The man who produces nothing but consumes lavishly has a negative net value to the country as a whole, that is, the country is better off when he dies than when he lives.81 The rich are, Indeed, responsible for the often raised cry of economic injustices ▲ proud and contentious spirit, either in an individual or a nation, creates enemies. It is not prosperity but ostentation whiah creates sanity against the prosperous; it is not power but swaggering which creates hatred against the powerful/52 8oIbld.. pp. 38>t-385. 8lIHd.. p. 175. 82H>ld.. p. 3k. 97 The agreement of these passages with m o h of the writing of Thor stein Veblen is unmistakable. Carver skirted the ethical problem of valuation. Be imputed neither merit nor fault to the position of the rich. Wealth is largely fortuitous, he thought. The ohanging values and tastes of the public are, in great part, responsible for the economic ascendancy of some and the decline of others. Those hurt by changes in values 83 demand redistribution in the name of justice. On Monopoly All monopolies, said Carver, are either of two types: privilege or knowledge. A monopoly of privilege Is a creature of a weak or corrupt government. A monopoly of 8*f knowledge is attributable to mass ignorance. Bespits the readily apparent low esteem in which Carver held governmental bureaucracy and politicians, he noted the need for a government of sufficient power and capability to control large-scale aggregations of economic 85 power. "The larger the corporation, the greater its power, either for good or evil, and this makes it 83Ibid., p. 2»f0. ^ Ibid.. p. 336. 85Ibid., p. 335. 98 Of. especially import ant that its power be under control,"00 Carver believed that much social unrest is traceable to the gulf that large-scale Industrial organisation has created between workers and employers. To bridge this chasm, he advocated a wide diffusion in the ownership of corpora tions • Carver's plan for the wide diffusion of corporate ownership differs greatly from the socialistic ideal of state ownership and direction. Carver referred exclusively to what he termed the "democratic" or "llberalistic" ideal: the ownership of enterprise is widely diffused, but every one is placed on his merits. There still will be room, he 87 said, for millionaires, billionaires, and paupers. Carver's ideas sure rather unique among theories of distrib utive justloe in that a majority of the doctrines envision an end to both pauperism and consummate wealth, to say nothing of a more equalltarian distribution of income. Competition and Conflict Man, thought Carver, has a profound, ineradicable devotion to conflict. In contradistinction to many, pri marily religious, writers who despair over the unnatural ness of conflict, and who believe it is forced upon 86Ibid.. p. 330. 87Ibid.. pp. 150-151. unwilling humanity by an evil economic order, Carver felt that the Impulse to conflict la simply one aspect of the human condition. It la useless and meaningless either to complain of It or approve it. Since It exists, the only vise course Is to channel it to a desired end. Conflict 88 can be made, he said, a force for human achievement. The natural diaposltlon of man to conflict la a theme recurring a number of tines in philosophic thought. It is somewhat remarkable that Carver, who Is generally not rated among the giants of economic doctrine, should have delineated a thesis which was later to find full expression at the hands of frank H. Knight. The human will to con flict , to compete, to play games, to engage In sport Is believed by Knight to be a prime and unrelenting factor 89 motivating man toward productive accomplishment. More recently, In a work devoted to a discussion of the relationship between managerial decision making and social ethics, C. West Churchman has propounded anew the Idea that conflict, not settlement, is the ultimate human ^Ibid., p. 90. ^9frank h . Knight and Thornton W. Merrlam, The Eftonnaic Order and Belinion (lew York: Harper A Brothers Publishers, l9*f57, p. 2*5j frank H. Kniafat. Intelligence PtTEcratic Action (Cambridge x Harvard Ctalveralky , l$o5j, p. lS/Y and frank H. Knight, The Bthloa of tltlon Q^lffr Baaava (lev York: Harper & Brothers, , pp. 62-63. 100 goal. Mankind is motIrated more toy the desire to create problems rather than toy a wish to so Ire them.9** A stress upon IndlTlduallsm is oommon to the treatment of conflict In Carver, Knight, and Churchman. All three agree upon the process of problem creation as an essential element in human progress. Carrer reduced human conflict to three basic possi- 91 ble forms: war, politics, and business. War is destruc tive; politics is not economically productive; only tousi- 92 ness competition adds to human material benefit. The influence of social Darwinism, an underlying theme of Carver's thinking, Is most clearly seen in his attitude toward competition. The principle of natural selection, however, does not operate as in the subhuman world. Carver vehemently deplored those who cannot per ceive the difference between the sheer struggle for exist ence as exemplified by nonhnaan living things and economic competition: Hot every form of struggle for wealth is economic competition. The only forms to which the name can accurately be applied are those wherein some form of service, real or imagined, is a condition West Churchman, Prediction and (Englewood Cliffs, Hew Jersey! Prentice-dall, xnc., 1961;, PP. 375-377. ^Carver, Essays in Social Justice, pp. 111-112. 92Ibid.. pp. 93, 111-112. 101 of success. These alone are economical forms of rivalry, all other uneconomical. ^ In the human world, society, not nature, prescribes the standards of fitness. Those who win the competitive struggle within the rules prescribed hy society flourish. Those who cannot measure up must endure poverty. Those who are unable to conform to the standards of social conduct 9*f suffer punishment. In answer to those who maintain that competition is evil, that it destroys human brotherhood, that it is incompatible with the Christian ethic, Carver replied that it is men, not the forms of organization, who are evil. In reasoning similar to that of the "game thesis'* of P. H. Knight, Carver saw no greater incompatibility between business and religion than between a tennis natch and - religion. It is the spirit in which either form of compstir tion is carried on that makes the difference for good or evil. The church, felt Carver, could do a great deal to remove the sting from economic competition by effectively preaching that the prize or victory is not the chief thing 95 but the code of conduct observed in the pursuit. Carver's complaint against the church is a familiar 93ibid.. p. 96. ^Ibid., pp. I6l-l6*f. 95lbid.. pp. 168, 256-257 one; the church, no longer content to preach against the sin of belief in wealth as the chief end of life, now preaches against the very game of achieving wealth whether the rules are followed or not. The moral impasse, if it is one, seems to turn upon the philosophic view that one takes of the relationship between scarcity and evil. Scarcity is a concept applicable to situations other than economic, restricting the usage of the word "economic" to the most usual meaning. Scarcity is that relationship between desired ends and the means to those ends revealed whenever, for lack of means, the desired goal cannot be fully real ised. Vivian Charles Walsh points out that "... there is an intimate connection between the economic relation of scarcity and the type of subject matter about which most 96 ethical statements are made." Competition is merely an aspect of the economising process. Perhaps a great deal of confusion beclouding so much of the moralising about com petition is the inability to recognise the intrinsically economic attributes of many experiences. People recognise the more obvious instances of scarcity through the usual stresses and strains of living, and insofar as they do recognise these instances of scarcity for what they are, people do not regard these deprivations as blameworthy. When we normally go astray is in dealing with the ^Vivian Charles Walsh, Scarcity (£nglewood Cliffs, Wew Jerseys Prenxice-Hall, Inc., 1961), p. 6. 103 happenings_in which ve do not recognize anything economic .97 In Carver's view, there is no escape from man's inclination to compete. Be pres sing one form of competition merely causes the eompetitlre urge to find another expres sion. That economic competition is to be preferred above other forms of conflict is deduced from a reflection upon the wastes of war and political activity: When two farmers compete with each other in pro ducing con, more c o m is likely to be grown as a result of that competition. When two candidates compete for a given office, the time which they spend in campaigning is wasted,— it produces nothing.9® Implicit in the above illustration is the analytical concept of pure competition. This construct is extremely helpful in avoiding ethical issues, but it is extremely misleading in the conclusions, particularly moral, which may be drawn from it, one reason being the comparatively rare instances of pure competition. Carver displayed dis taste for the waste of political campaigning, but this waste is paralleled, to a considerable degree, In the advertising and other promotional expenditures found in the infinite number of cases of nonpure competition. Fur ther, the problem of valuation la assumed away in Carver's 9?Ibid.. p. 50. 98 Carver, Bssavs Snoi*} Jnatie^T p# 89* 10** Illustration. No consideration is given to natters under* lying demand in connection with, say, the raising of corn. The raising of more corn, in the light of market conditions (e.g., a surplus) may tend to be a virtually antisocial act. Carver was not pleading for the free reign of com petition; he saw that economic competition can break down into an ugly class struggle, as those beaten in the economic arena tun to another (and lover) form of competition. From economic competition, the vanquished turn to politics, and, if beaten there, can always revert to sabotage and 99 acts of violence. There is some truth in Carver's obser vation, as many instances of social unrest show. The prob lem faced by the moral social order is to prevent, to as great an extent as possible, unnecessary defeats in the arena of economic competition. A recognition of this ideal is shown in Carver's repeated assertion of his opposition to lalsses-faire. Noting that anyone who argues for laisses-falre must be prepared to show that every individ ual is perfectly rational and that all human interests are harmonious, he asserted that the unreality of such assump tions mandates some degree of governmental interference • The "Invisible hand" doctrine of Adam Smith is acceptable "ibid.. p. 87. 105 as an explanation of the social resolution of individualis tic forces if, said Carver, it is realised that the result ant harmony comes about in the context of governmental intervention and not as the result of the natural order. Government and government alone prevents competi tion from lapsing into the brutal straggle for existence, where self-interest leads to uneconomic as well as to economic,— to destructive as to pror ductive activity on the part of the individual.100 "The Hew floaoel of There are three principles in Carver's "new gospel of individualism": (1) all harmful methods of pursuing self-interest must be suppressed; (2) all persons have absolute freedom to pursue their self-interest in all social ways; (3) the individual is solely responsible for his own well-being. This last point means that those who cannot keep themselves— those who cannot serve society adequately— reap poverty as their reward The statement of the third condition might well cause wonderment as to how a program of distributive justice could be drawn which encompasses such a mill tan tly individualistic principle of survival. To this issue, we shall now turn. 1QO Ibid.. p. 108 101Ibid.. p. 159 106 AchltrjlY ■tributive Justice within the Carver stated that all theories of distributive jus tice can be grouped under three headss aristocratic, socialistic, and democratic or liberalistic. Under an aristocratic scheme of distribution, the good things of life go to an elite group• The familiar principle of dis tribution according to need is the distributive guide for socialism. The basis of income distribution in a democratic society is usefulness or worth, these two standards— in reality one— being determined by one's economic productiv- 102 ity. Carver offered hie distributional plan as "a program better than social ism"— a plan which will provide any desired degree of economic equality. He envisioned liberty and an "approximate" degree of equality among incomes The social program of the future is to work out a bystem under which all the people may without con straint or oppression, each one remaining the master of himself, live on a high level. It is needless to point out that such a result has not yet been achieved, and that it furnishes a pros pect so pleasing that such a scheme as socialism seems like a pitiful makeshift in conparison.-LUH> In the liberal or democratic society, distribution 102Ibid.. p. 159. 1Q3ibjd.. pp. 136, 1V7, 266 1(*Ibld.. p. 136. 107 105 is based on a person's worth— his "social utility." The Carrerlan concept of distributive justice does not guarantee the elinination of poverty. Only charity, which he vigorously distinguished from justice, can result in the elimination of penury. This sentiment and the basis of his theory of distributive justice is to be found in the following passages It is a coanon error to suppose that justice would eliminate poverty. If by justice is meant that each individual should get exactly what he produces, or what he is worth, it is certain that poverty would not be eliminated, and might not even be materially diminished. If each one gets only what he produces, or what he is worth, and if he does not produce enough to live on, or if he is not worth enough as a worker to earn a wage which will support him, he will still be poor. Before we can eliminate poverty, therefore, we must not only secure justice for each individual, but we must also see to it that each one is made worth enough, or productive enough to enable him to live comfortably upon his earnings.10** Carver's plan for distributive justice, then is to make every person worth enough to earn a viable income. He pro- posed to accomplish.his "redistributional" plan through the price system of the free-enterprise economy. Carver saw no antagonism between the price mechanism and the redistri bution of income. Conversely, a number of economists have consistently maintained that certain redistributions of 10?Ibld.. pp. 168-169* 292 106Ibid.. p. 359. 108 income would facilitate the operation of the price system 107 ae an efficient allocator of resources. Man does not often encounter economic resources naturally existing in efficient combinations. In combining resources in proportions more useful to him, man must follow what Carver called the "law of proportionality." The "law of proportionality" determines how much of each resource shall be used in combination with others to pro- 108 duce a desired good or service. Carver explained the relationship between the law of proportionality and the law of diminishing returns: The phase of the law of proportionality which has been most clearly understood and most fre quently discussed in economics is the law of diminishing returns from land. The law of dimin ishing returns, however, is only one, and by no mean^Q^he most important phase of the larger Carver asserted that the law of proportionality helps to determine justice He illustrated his conten tion by contrasting two situations. In the first, so many ^Por example, see the work of the present-day writer on price theory Richard H. Leftwloh, The Pgio* Sys tem and^Resource^A^location (Hew York: Rinehart * Company* lOScarver, Essays in Sneifl Justice, pp. 177-178, 18M-, 200-201. 109Ibid.. p. I8*f. 110lbid.. p. 201. 109 laborers are present at a given spot that nothing addi tional can be produced using any wore units of that grade of labor. The physical product of an additional nan cowing to that place of production would be sero. His services (he) would be worth nothing. In the other situation, the nuwber of a certain kind of laborers is so low relative to the other factors that the addition of another laborer of the same grade would add greatly to total product. The productive contribution of this warglnal worker would be high, and he would be worth such. Carver contended that if a worker contributes the value of one dollar per day to the cowwonlty and is actually paid two dollars per day, the additional dollar would be available for so we one else if the overpaid worker would leave the cowwonlty. The worker receives the extra dollar at the expense of soweone. Carver suggested that the overpaid worker way need the extra dollar, but whatever the conditions of that need, the extra dollar cowes not by Justice but is given out of sowe form of benevolence or . Ill coercion. Considerations of morality, as commonly held in religious or humanistic philosophies, are abstracted out of Carverian distributive Justice. Thus, an Illustration 111Ibid.. p. 201 110 from Carrei*' s Dletrlbutlon of Wealth shows how the value of the services of a nan bringing firewood from a forest to a city depends entirely upon the city dwellers' valuation of firewood* If the city dwellers, for example, use natural gas as fuel, firewood may have a rather low value. If this is the case, the seller of firewood has no com plaint against any injustice in the eoonomlc order. In the words of Carver, "If he wants higher wages than his labor is worth, he must appeal to charity rather than to 112 justice Another problem of distributive justice is posed by the possession of varying degrees of power to satisfy the wants evidenced in the market. If one wood gatherer has more remarkable powers of wood gathering than others of the same trade, those of lesser power have no justifiable com plaint against the greater income being meted out to the more powerful workers. Similarly, said Carver, wood gatherers would have no occasion to complain of any injus tice in a situation where nut gatherers garner more income because nuts become relatively more highly prised by the community than wood.^*3 The problem of the possession of greater labor power ^“ ^Carver, The Distribution of Wealth, pp. 135-136. 113Ibid.. pp. 137-l*frl. Ill on the part of some members of a given labor force occurs most forcefully In employment under piece-rate conditions or under many labor Incentive programs Including those of the Soviet Union. Just or not, workers fear the presence of those who are able In the exercise of their ordinary capabilities to out-perform the levels of achievement attained only by the most Herculean efforts of the repre sentative worker. A l l of Carver's illustrations presuppose that no coercion or antisocial restrictive processes are used in enhancing the market value of a particular factor. The employment of any artificial limitations, such as monopoly, in a field of economic endeavor would mean that those adversely affected to have a legitimate grievance against ill* the resultant injustice. A The Gospel of Individualism Concluded What is just and what people want or need may not coincide in the economic order. Carver's program of dis tributive justice is to bring wants and justice into coincidence within the framework of the free market econoay subject to broad governmental prohibitions against preda tion. The greater part of Carver's work, dealing specifi cally with a program of distributive justice, is an lllfIbid., p. llfl 112 explanation of how to get any "wanted" distribution and how to do it without resorting to eooiallan or central planning. The OutHqf a f Carver* a Program for Distributive Justice Carver's program for distributive justice consists of two main parts: a legislative program and a nonlegisla- 115 tive program. Legislative program. The legislative program is, in turn, broken down into three parts. The first of these is concerned with the redistribution of unearned wealth. Carver recommended the redistribution of unearned income through the increased taxation of land, a steeply graduated inheritance tax, and the imposition of controls on monopo listic prices. The second part of his legislative program is con cerned with the redistribution of labor power. Carver wanted to increase the supply of the higher valued (scarcer) forms of talent by vocational education. Education is the most important technique in his program, bulking much greater in stature than most of the remaining items taken together. To force desirable talents to offer their ser vices, he proposed cutting off any flow of income which might permit otherwise capable people to withhold their 11^Carver, Essays in Social Justice, pp. 26^-265. 113 talents from useful employment. Conversely, Carver recom mended taking steps to decrease the lower forms of labor power. Most of his measures add up to population control; he wanted to restrict Immigration and human reproduction. The latter measure he would have accomplished by insisting that young couples— particularly young men— have a certain laiwiMw level of Income before the state would issue a marriage license, further, he would attempt to make "economically sound1 * marriages Into "biologically sound" unions utilising the science of eugenics. The third and last part of his legislative program is designed to increase the growth rate of the economy by insuring the regular increase of capital goods. Using methods similar to those suggested earlier by Henry George, he would force the owners of natural resources to make their property available for the common good, in increas ing supply of capital would be facilitated by a number of devices to encourage thrift, among them the promotion of saving as a sound moral act, the provision of savings institutions, and the enactment of measures to protect the saver. Honi^ffielative program. Carver's nonlegislative program also has three parts. The first part is designed to increase the standard of living among the members of the working class. Here, ll»t he stresses education once again. The second part of his nonlegislative program is to create the climate of public opinion essential to the suc cessful use of his recommendations. His primary concern was the establishment of a sound private morality. He encouraged sound "family building.** Planned parenthood is one aspect of this; another aspect is the obligation of parents to provide their offspring with all that is needed for the full development of their children's capabilities. Carver wanted to instill the gospel of the productive life in every home. He considered leisure to be disgraceful. A productive life is a religious life. Wealth is not the means to self-gratification; it is a tool. Those who possess it have an obligation to employ their wealth for the social weal. Further, he believed that businessmen should adopt a professional attitude to the end that they would frame, accept, and live by a rigorous code of moral business conduct. The final part of the nonleglslatlve program is a rehearsal of Carver's sundry moral guidelines to the pro ductive life. For example, he disparaged: . . . the idea that a college education ahould aim to give one a "gentlemanly appreciation" of the ornamental things of life, such as literature, art, ? olf, and whiskey, rather than, to strengthen one or the serious work of life. ll6n>id.. p. 265. Criticiaa or Carver** Q n t l ^ 115 The influences The evidences of the heavy strain of American puritan 1 as, the heritage of Calvinism, and the age of the "inner-directed"11^ 7 man are unmistakable in Carver's program; they largely form the ethic of Carver's view of the just distribution of income. Although American puritaniam is fading into history 9 and Calvinism is now diluted and nutated, and the "other directed" man has replaced the "inner directed," and Thomas Hlxon Carver has been excoriated for his naivetd in offering so facile an answer to the perennial problem of justice, it is interesting to reflect on how many of Carver's proposals have been adopted or strengthened since the time (191*0 his Essays ^ filial Justice first appeared. With the general exception of the population control measures,— birth control and eugenics— nearly all of Carver's legislative program is now operating at varying 118 degrees of effectiveness. The nonlegislative program ^?The terms "inner" and "other directed" man, now in wide use are generally credited to the American soelolo ? ist David Rlesnan who used them in his The Lonely Crowd Hew Yorks Doubleday Anchor Books, 1953)* PP* 3*^3®. i:L®At the time of this writing (1963), several states have began to adopt or seriously consider several population control measures ranging from the public pro vision of contraceptives to jail terms for the parents of moire than one illegitimate offspring. 116 has not fared as well. Possibly, no one would laaent this; such of the later program seems more ideally suited to an economy in which many basic wants are unfulfilled. The "disgracefulness of leisure" would now be rather suspect as an ethical norm, and Carver's association of literature, art, and golf with whiskey perhaps tells something of his personal moral code. The supply side of the factor market. Although the Carver treatment of distributive justice epitomises the viewpoint of those who impute ethical qualities to the marginal productivity principle, Carver, himself, gave much attention to the supply side of the factor market. The ethics of the valuation problem may have received scant attention, but Carver was vitally concerned to alter the conditions of supply, so that the socially desired income distribution might be attained. Productivity, of course, remains the basis of reward throughout Carver's philosophy. We have noted that he rejected distribution on the basis of need. Similarly, Carver repudiated distribution on the basis of effort. If rewards were granted on the basis of effort, not only would resources be mlsallocated, he noted, but the "stupid and bungling" would survive along with the effectively produe- 119 tlve members of the economy. 7 ^ibid.. pp. 169-171. 117 The attention that Clark gave to the supply side of the narket for productive services was to take Market con ditions as a datum. He treated the labor force as largely synonymous with "population," and said nothing about what Might be done with the population or the potential popula tion to alter the conditions of supply. This was not so with Carver. Carver, a determined expositor of Heonalthn- sianlsn, would have begun improving conditions on the sup ply side of the labor market by a thoroughgoing program of population control. Population control is the most important aspect of the conditions affecting the supply side of the labor market, Carver felt; the share of Income going to labor 120 is, in general, largely a question of population, "Immigration from heaven" has the sane effect as immigration from Europe, Carver observed. He urged adop tion of a policy designed to restrict both types of imlgres from adding unwelcome Increments to the population and, hence, to the labor force. He proposed severe restric tions upon the legal conditions of marriage, and he advo cated birth control and the raising of the wage rate to cause a diminution in human reproduction rates. If a family has a low standard of living, argued Carver, it will 120Ibid., p. 168. 118 produce many children* ▲ family with a high standard of living will reproduce only up to the point at which the standard of living will be maintained* This, In turn, sets the wage rate* Moreover, the fewer number of children pro duced by families aspiring to a better material way of life will result in a decrease in the supply of labor— a force 121 operating to push the wage rate upward* Though noxmally mild in the general tenor of his writings, Carver vented a most vitriolic attack upon those who do not positively disfavor large populations. In a notable passage entitled "Foxes Approve Large Families in Babbits," he wrote: A certain type of military adventurer approves large families among the poor, for that means plenty of cheap food for gunpowder* A certain type of priest approves them because they provide plenty of submissive parishioners* A certain type of employer approves them because they pro vide an abundant supply of cheap labor* They also mean low wages and widespread poverty. They mean an increase in the number of property less workers* That means a ready market for the wares of the socialist leader* It also means a nearer approach to the point where fifty-one percent of the voters have no Interest in the laws for the protection of property, nor in the state which enforces those laws* That means a complete change in the character of the state, of society, and of civilisation*122 In Carver*s eyes, those opposed to programs of ^-^Carver, The Distribution of Wealth* pp. 170-171. 122Ibid.* pp. 262-263. 119 population control aro completely estopped from making any pronouncements whatever about distributive justice. He who has consciously and intelligently done some thing to increase the demand for labor, or to reduce the supply of it, has a right to speak on the labor problem. All others who exercise their verbosity in this field are mere eharlatans.^2^ The influence of Hal thus is clear, for Hal thus strove to show the inhibiting effect on the reproduction of those English families who enjoyed a standard of living higher than that of the wretched workingman of the eight- loif eenth century. Service as the The just basis of rewards in the Carverlan scheme is service. In a properly ordered society, Carver suggested that the greatest servant will have the greatest reward. Where needs and desires coincide, it is liter ally true, without the least bit of uystlcism, poetic license, or oriental imagery, but with the most occidental and matter of fact regard for scientific accuracy, that whosoever would become chief you gi|l become your servant. He who performs the greatest service becomes richest, acquires greatest popularity or secures the largest number of votes, according to the method which people choose for rewarding their servants. ^ 123ibid.. p. 383. 1 ^Thomas Robert Mai thus, Population! The First Essav (Ann Arbor, Michigan! Ann Arbor Paperbacks, The University of Michigan Press, 1959)* PP. 22-2*f. 125carr«Pf Essays in Social Justice, p. 391. 120 Most thoughtful present-day economists would agree that the market does not adequately reflect all of the valuee held by Individuals in a society* Many values are never recorded in the narket at all. Assuming that individ uals have morally sound standards of valuation, many of these values will not be appropriately considered in the market. If the greatest servant of humanity provides ser vices Inadequately handled through the market mechanism, his reward will diverge from his productive contribution, and he may not become "the richest•" On the other hand, if the market mechanism works perfectly, as Carver assumed, then it becomes possible to say that the "greatest market evaluated servant" will become "the richest•" If the people are held to be the best judges or interpreters of a moral standard, there is reason to believe that significantly large distributions of income to antisocial recipients will be precluded. The market mechanism is one way in which a consensus of opinion is 126 registered and effectuated. S a l s ' * productivity of labor. The fundamental basis of Carver's distributive justice program is the institution of a program to raise the marginal productivity 126fhe final chapter of this dissertation is devoted, in part, to a consideration of the natter of consensus. 121 of labor. Ha asserted that society could have any degree of Income equality it cares to, and If It does not care to establish Income equality, the reasons for such an incllna- 127 tion would be honestly and openly revealed. Carver advocated measures to Increase both the hori zontal and vertical mobility of labor. In one respect, he was ahead of his time in noting an important oversimplifi cation In neoclassical economic theory. He pointed out that even if there is always enough work to furnish needed opportunities for employment, the work may not be where the worker is. He would have the worker assisted in the attainment of geographical mobility. However, much of the onus is on the worker; he must be prepared to move and to lOft change jobs. Carver earnestly supported equality of opportunity in the sense of equality of educational opportunity. Inborn latent talent ought not to be allowed to go untrained. Bather unusual for his day, Carver suggested that young men should be trained for managerial positions, creating a tendency toward more income equality. Toung men, he said, will earn greater incomes as managers than they would have as untrained laborers; at the same time, 12^Carver, Essays ip Justice, p. 375 128Ibid.. pp. 367-368. 122 the addition of nor* young nen to the ranks of naa&genent will tend to depress the relative share of incoae going to 129 the ■embers of the managerial class. Along with steps to increase the innate capacities of human beings, Carver wanted action taken to Increase the supply of capital so that labor's marginal productivity relative to capital would rise until it would capture the larger income share.Labor ought to be made so scarce relative to capital, said Carver, that not a single laborer could be spared from the productive process without griev ous loss to his employer.1^1 Although this might increase the power of labor relative to that of the capitalists, Carver's great distaste for any fora of monopoly clearly implies that he would not have favored any "artificial" means of achieving labor scarcity. It is reasonably clear that he would not have approved of a good number of the paths to scarcity chosen by the American trade union move ment in the years subsequent to his writing. Carver disavowed socialism as a defeatist program, for, he said, it accepts the unhappy position of labor and merely redistributes Income arbitrarily without any 129Ibid.. pp. 36^, 365, 152-153 13°Ibld.. p. 363. 131Ibld.. p. 358. 123 realignment of relative productivities between the fac- 132 tors* Carver on Religion Our discussion of Carver's plan for justice in die* trlbutlon will end with a note on his attitude toward religion and the churches • Many of Carver's works contain his own philosophy of religion, and in one, The Religion Worth Having, he devoted himself exclusively to matters of religion, although his religious writing is mainly applicable to economics* Carver contended that the church should not preach Ma vague doctrine of social service," but should return to 133 emphasising the clear-out doctrine of salvation* Tinder the Carver scheme of distributive justice, the necessity of the churches* speaking on social questions would be obviated* Then: • • • the church could preach to individuals with all of the old fervor and would need no longer to make a spectacle of itself by running around in a circle trying to find something in the way of social service or political reform to, espouse in order to justify its own existence*1^ 132Ibid., p. 260* 133Tboaaa Mixon Carver, The Belj/riftp Worth Having (Boston and hew forks Houghton Mifflin Company, 1912;* 13lfCarver, Essays Social Justice, pp. 275-276* 12*f Carver's attitude toward the Mission of the church is diametrically opposed to that of another notable American, economist Richard T. Ely, who believed the church to be too much concerned with matters of theology end insufficiently involved with issues of sociology.^5 Carver, however, appears not to really mean what he said, for his declarations reveal that he was most inter* ested in having the church proclaim the social gospel as long as it was the Carver version. Certainly, his advocacy of the churches* preaching that productive service is in accord with divine law is a manifestation of the social gospel the proclamation of which, he felt to be demeaning to the churchHe is inconsistent in his criticism, demonstrating, after all, that the church is usually expected to address itself to the social issues of the time. These social issues change; hence, perhaps in Carver's era, during which many economic problems arose from the paucity of productive facilities, his personal proclivity for a social gospel of production had something to commend it. In other times, when sheer productive capacity is not nearly as of great moment as is the direc tion of that capacity and the distribution of its fruits, ^^Bichard Ely, Social Aspects of Chri*tlf^i±y and Other Essavs (lew Torkl Thomas T. Crowell A Comoanv. lawr: — 136<^PTer> ih. B»lljtlon Worth Haring, pp. 133-ll*0. 125 these will be the issues which any serious observer of and commentator on society must consider. Thus, we have the Carverian system of distributive justice— a system in which the criterion is productivity, one's productivity being determined in the market. Those who suffer at the hands of justice may find redress by becoming more useful— more productive— by malrlng themselves over as their fellows would have them. V. THE "ROUGH JUSTICE" OR WILLIAM SMART (1853*1915) The "Rough Justice" of the Market System Quite often, the marginal productivity scheme of distributive justice is spoken of as a defense of the status quo. No exposition of the marginal product-ia- justice approach so clearly exemplifies this assertion as does the work of the English economist William Smart. Smart, a contemporary of Clark and Carver, supported the idea that the receipt of the value of the marginal pro duct of a factor by the factor owner is justice in distri bution. Although he was not as transfixed by the logical precision of the doctrine as was Clark, neither was he as anxious to modit j existing market conditions, in the manner of Carver, to bring about a distribution at once both just and pleasing. Smart was more interested in using the mar ginal productivity theory to show that the existing 126 distribution of income was sufficiently just, so that no one should feel any great indignation about the then pres** ent state of affairs, Sn&rt, himself, showed no great enthusiasm for the existing distribution, but, on the whole, he felt that it was superior to any distribution of a past period and was quite likely to be better than any achieved after a number of ill-starred attempts to interfere with the normal functioning of the market mechanism. Whatever the distribution is that we have, argued Smart, it is a distribution based on ethical precepts, and is thus attentive to the Inman condition, for if it were 137 not, rewards would go to the cruelest and strongest. Smart had scant patience with those who preferred the economic order of pre-capitalist society to that of his day. The old order had greater inequality than the present, and that inequality had a more reprehensible basis than the inequality existing in a capitalist society* The inequal ity of wealth and income in the old order was based upon power, privilege, custom, tradition, status, and birth. The inequality of the present capitalist order stems from differences in productivity. Smart oaustlcally remarked that the church, which is the source of so much vocal criticism of the inequality of the new order, was Itself 1 ^William Smart, Second Thoughts of yi Economist (Londonx Macmillan and Co •, Limiiea, 191o), p, l7. 127 very largely responsible for the greater and more no rally Indefensible Inequality of the old order The argument between Smart and the church is between a conservative and a reactionary. Smart argued for the status quo— for the distribution as it now is. The church argued for the status — for the distribution exist' ing before the ascendancy of the capitalist order. Vo doubt, Smart's charge against the church was properly drawn for the time period to which it relates, for in his day and before, the attention of the church was fixed upon the life to come. The church did not deny that many of its children were bom into a most unhappy state in which the church taught they ought to stay. To some extend the church did act to ameliorate the most apparent and aggravated conditions of abject poverty by insisting that charity was a duty of those fortunately situated in this world. But the main expression of the church's concern for those of her children who were miserably rewarded in their sojourn upon earth was to assure them that in exchange for the poverty to be endured in time, there would be an abundance for eternity. The church was preaching capitalism— spiritual capitalism. Smart, like many others, was impatient with this sort of answer, feeling that the 138Ibld., pp. 17-19 128 church had never demonstrated any convincing causal rela tionship between poverty in this world and riches in the next. One of the earliest sermons on record, for text, Lazarus full of sores begging at the door of Dives who fed sumptuously every day— with the rather startling corollary that, in the next world, for no very obvious reason, the distribution of "good things" would be the other way about Despite his advocacy of the present pattern of Income distribution as it emerges from the existing economic order, Smart never asserted that we dwell in the best of all possible worlds. He felt sure that the old order was inequitable, unjust, and morally Indefensible, but was doubtful that efforts to affect income distribu tion could improve matters. The present order falls of IlfO perfection, but at least it metes out a "rough justice." The smallness of the share which goes to most indi viduals is the real problem, Smart argued. The proper pro cedure is to increase the size of the total or aggregate income of society so that the absolute share of each par- ibl ticipant in the economic process will be raised. The "rough justice” that Smart found in the economic ^ i b i a .. p. 15. Smart, The Distribution of Income (Londom Macmillan and Co., Limited, l4^3)» PP. 323~32*f. ‘ ''Smart, Second Thoiyh-f fp Economist, p. *+2. 129 order or the market economy le that rewarde are a function of productivity— at leaat this ie aore true than it had been or would be under any other form of economic organisa tion. By a prooeae of elimination, by shoving what dis tribution according to productirity la not, he attempted to establish the comparative superiority of distribution according to productirity. It is not, he said, a distribu tion to idlers, thieves, or parasites; it is not based upon force, custom, birth, or fraud. It is closely related to lb2 the service men render to their fellows. Smart was not so unmindful of reality that he refused to admit of the elements in society tending to be antagonistic to the forces leading to distribution on the basis of productivity. As an economist, thinking in terms of the models of pure and perfect competition, Smart favored the elimination of the noncompetitive forces in the economy to the end that distribution, to the greatest extent possible, could be based upon service or productiv ity. The M&ryiwi Productivity Principle If we are to measure rewards based upon productiv ity, the only proper basis, held Smart in agreeing with Clark and Carver, is the principle of marginal productivity. lif2Snart, The Distribution t^ H t PP« 323”32*f 130 Any other method inevitably falls back upon some non ser vice ideal of distribution. If an attempt is made to assess the reward due participants in the productive pro cess on any other basis, one falls into the trap of reward ing for pain or subsistence, neither of which bears any relationship to service. The judge of service is the market. When the fac tors put themselves and their joint product on the market, they agree that they will accept the verdict of the market lliii as to their worth. This statement may seem inconsistent issuing from a man who disparages the "natural right" of Ilf 5 anyone to a living. We may ask what "agreement" is made and how factors qua factors "agree." Moreover, the market may be the court in which the verdict of worth and, hence, reward is delivered, but unless we can Impute to this human Institution, an infallibility not perceived in courts considering other matters, the possibility of a miscarriage of justice remains. Smart would probably have agreed with the preceding statement. His reliance was not on the infallibility of the "market-court" but upon the elimination of arbitrariness llf3lbld.. p. 32*f. lMfIbid.. p. 325. Ilf 5 Smart, Seoond Thought7 Economist, pp. 2*f, 72. 131 through the s1nl taneous recording of an infinitude of individual judgments. In reality, he was attributing no qualities of vox poouli. vox Dei eat, to the conaeneua expressed in the market, but was making the hopeful assump tion of rationality made by many economists when they assume that the nearly perfect randomness of the behavior of a large number of people makes possible the postulation of the rational behavior of the representative homo econo micua. Despite the possibility that the verdict rendered by the market may not be consonant with perfect justice, Smart made the telling observation that no one can presume to tell others that he has a better conception of the just distribution than anyone else* If the verdicts delivered in the market are unjust, there is no reason to suppose that the socialist knows what justice is anymore than do the people who cast their votes in the market, urged Smart.11*6 Again, it must be observed that the market may be a marvelous mechanism for the efficient guidance of processes which are properly sensitive to the preferences expressed in the market, but there may be other ends, among them justice, for the attainment of which, direction is not Smart, The Distribution of Income, p. 330 132 effectively given in the Banket. Tot example, collective wants are not expressed satisfactorily in a market system* Society has a real Interest in the education of children. Tet it vould be most difficult for a person to express his wish in the market that the children of another be sent to school. It also is extremely doubtful that the joint con viction of even a large group of people that the children of others should receive a certain minimum of education could be expressed in the market or that it ever vould be expressed in the market. The decision of the majority that all children shall receive a certain standard of education is registered by an extra-market procedure. Smart, whatever his argument, is not open to vigor ous attack on most of his points, for he was not a purist. He urged only that rewards based upon productivity have a Mrough sort of justice" about them. In a typical passage, he saidi When all considerations are given their due weight, it seems to me that, given private property, the free transfer of property and the inequality of start which the possession of two factors of production or of a differential factor gives, there is a good deal to be said for the present distribution as a Distribution according to Service. At least, there is enough of "rough justice" in it to make even those of us who feel its imperfections most keenly think twice before we give our countenance* to any rival scheme which has yet been proposed.' 1 W IW4., p. 333 133 Smart felt that there need be no fear for the future of labor relative to ita share of Income. He believed that the relentless struggle to find markets vould prevent pro fits from becoming excessive. Vigorous competition, he asserted, vill press profits down to a "subsistence of efficiency." Conclus-t?" * * * * * Appraisal The most serious objection to Smart, as to all of the theories of distributive justice which are based upon the marginal productivity principle, is not with any defect of logic or internal structure, but that they involve func tional, not personal distribution. Justice is a natter between persons. Standards of ethical conduct are meaning ful only within hnnan relationships. Functional distribu tion treats only of the distribution of income to the depersonalised and highly abstract factors of production. Functional distribution is a useful tool of positive economic analysis; it is less clear that it is appropriate to a discussion of income distribution centered upon ethi cal issues— matters concerned with who, not what should share in the aggregate income of society. l UA Ibid., p. 327 71. MODERN REFORMULATIONS OF THE MARGINAL PRODUCTIVITY ETHIC Lon-»« o. Kelso pad ^T*- ! *dl«r Although, the marginal productivity theory as a theory of distributive justice has been virtually abandoned, it has not been forgotten entirely. Occasionally attempts are made to revive it and to present it anew in a reformu lated state as a principle of distributive justice. One of the most recent of these attempts at revival is that of Louis 0. Kelso and Mortimer J. Adler who in The Capitalist Manifesto declare that income apportioned by marginal productivity is the measure of distributive jus- 1^9 ties. This work is strongly redolent of Thomas Nixon Carves With him, Kelso and Adler acknowledge that the fruits of justice may be bitter, and thus the appropriate remedy for society is not to attempt to reward on some basis other than economic productivity, for this would be unjust, but to reconstitute the distributees, so that justice and "satisfaction** or "happiness" may coalesce. Kelso and Adler explicitly accept productivity as the proper claim to a share of the national income: Kelso and Mortimer J• Adler, The Capital ist Manifesto (New York: Random House, 1958). 135 In order to share in the proceeds of the productive process, one must have contributed productive powers to the process. If one possesses no productive power . . . then one can sake no^laim for a just share of the productive output .1^0 The marginal productivity basis of a just distribu- * tion is exemplified in the assertion of Kelso and Adler that the contribution of a factor to the productive process is to be measured under conditions of "free competition.*1^1 The problem to which Kelso and Adler address them selves is one which obviously has not been solved; it lex . . . the problem of achieving a just distribution of the wealth produced in an industrial society, while at the same time (1) preserving the prosperity of the economy* (2) securing economic welfhre by a satisfactory general standard of living for ell* and (3) maintaining the economic and political freedom of the individual members of society.1 ^2 Tha importance of capital. A major contention of the authors is that capital produces 90 per cent of all wealth (income) in the modem industrial society Obviously* labor* which Kelso and Adler allege to produce only 10 per cent of the national income* would fare very badly under a system of economic rewards based on produc tivity. It is also obvious that labor must be receiving 150Ibld., p. 53. 1^Ibid.. p. 56. lg2H>ld.. p. 60. ^•^I Md .. p. 65. 136 rewards substantially in sxeess of its productivity if, as ths authors ssy, labor receives 70 per cent of the national 15^ incone* The explanation for the divergency between pro ductivity end reward is quite simple; the two authors con tend that labor simply expropriates the incomes of others— the capitalists. In this, labor is aided and abetted by government and social pressure. Pie "labor!atic" distribution. Kelso and Adler recognise that a just syetem of distribution would have Inflicted a life of unendurable misery upon labor, ulti mately fomenting strife leading to the revolutionary end of our system. Marx's prediction of the violent end of capi talism has been defeated by a Mlaboristiow and unjust redistribution of income. The three distributi™ p*Hwciules of Kelso and Adler. Although economic welfare may be maintained under a laboristic distribution, the cause of economic justice is defeated. The program offered by Kelso and Adler proposes to combine welfare and justice by utilising three princi ples. 1. The principle of distribution. Each person who contributes to the productive process should receive a 19* Ibid. 137 155 proportionate share of the value of his contribution* 2. The orlnft-fpl* of participation. Each nan has a right to participate in the productive process In order to 156 assure his natural right to the Maintenance of his life* The acceptance of natural rights is Implicit throughout The Capitalist . and the heavy influence of Adler's extensive background in Thonistic philosophy la clearly evident• 3* The of limitation* Ho one hae a right to the ownership of such an amount of the means of produc tion that the rights of others to participate in the pro- 157 ductlve process would be Impaired* The third principle is the heart of Kelso and Adler's prescriptions. They argue that not only is the bulk of wealth produced by capital, but that it is Inexor able that capital will produce ever more of the national income as time goes on. Unless a revolutionary change ocours, they believe that the only result possible will be the continued exclusion of a growing vast majority of households from participation in the productive process* Misery and social upheaval may be precluded by a continued l5?Ibid.* p. 67. 156Ibid.* p. 68. l^ibid* 138 laboristlc or exploitative redistribution. But the labor- istie redistribution is unjust and immoral. However, as enunciated in the third principle, the exclusion of the mass of the people from the productive process is condemned. The answer to this seeming dilemma is that the great bulk of the population must be admitted to full participation in the productive process through the acquisition of ownership 158 in the means of production. This is Kelso and Adler* s "capitalist revolution." It represents the fulfillment of the homily, "Every man a capitalist." After the "capital ist revolution," every family vould own a large enough share in the means of production to assure that the income now justly theirs would, at the same time, be a viable income • Kelso and Adler, therefore, break company with a number of Boman Catholic writers on distributive justice who argue the right of every household to a "living wage," the living wage usually being based upon some generalised living standard appropriate to a specific station, time, 159 and place. Kelso and Adler do not argue that an indi vidual has a right as a person to any particular level of income. The right for which they contend is the right to l58Ibid., p. 81. ^■^Ht. Bev. John A. By an, A irfaite (Mew York* The Macmillan Company, 1920), passim. 139 participate in the productive process to such an extent that the individual will receive a viable incoae in exchange for hie productive services.1^ 1 Socialise and laisaes-faire capitalism rejected. The exact antithesis of the Kelso-Adler argument is the socialisation of the means of production* Economic welfare may come about as a result of socialism, but the income distribution proceeding therefrom will not comport with justice. Further, the authors believe, that it is likely that political and economic freedom will suffer under a "socialised economic organisation*"1^1 Kelso and Adler object to the labor theory of value propounded by Karl Marx and, according to the authors, implicitly and perhaps unknowingly, accepted and furthered by the modem authorities J. M. Keynes, Richard Tawney, A* A. Berle, and J. K. Galbraith* Kelso and Adler maintain that these four writers, in their seal to increase aggre gate demand, have advanced the argument for a laboristlc 162 division of income* Socialism would not produce an income distribution based upon justice, say the authors, but would be more l60Kelso and Adler, op. cit., p* 82 161Ibid.. pp. lib, 137. l62Ibld.. p. 121. I*t0 likely to be based upon need or charity. With T. N. Carver the authors of The Capitalist rate justice a con- 163 cem of no re value than charity. Socialism would deny the individual his natural right to employ his own resour ces in the productive progress and to reap the reward as his just share of income. Kelso and Adler do not argue for laisses-faire capitalism; they feel it has conclusively proved its inability to assure full employment.16^ Summation of the Kelso-Adler program. The program envisioned by Kelso and Adler to preserve the benefits of capitalism while insuring a just and viable distribution of income is threefold: (1) the ownership of existing enterprises must be broadened; (2) new enterprises using new formations of capital provided by new capitalists must be created; (3) the ownership of capital must not be allowed to concentrate so that the provision of a viable income to everyone may be assured.16^ Among the methods suggested by Kelso and Adler to insure a wide diffusion of capital ownership are equity- sharing plans, the modification of death and gift taxes, l63Ibid.. p. 80. l6ifIbid.. p. 152. l6?Ibid.. p. 169. Ihl modification of the personal income tax, the termination of government practices which tend to concentration, the regu lation of corporations to avoid the concentration of owner ship, the creation of more owners of corporations, and the insurance of the citisen-capitalists against loss. Appraisal. Kelso and Adler vigorously assert the superiority of an income distribution based upon productiv ity to one based on need, yet they define the correct apportionment of the means of obtaining that income as an ownership interest in capital large enough to yield a "viable" income. This raises the question of how a "viable” income can be determined without reference to need. The floor and ceiling of incomes allowed under their proposal are to be determined by the legislature.^^ The legislature must determine the just distribution of capital ownership, the guideline being only that each household must hold title to sufficient means of production as to yield it a "viable" or "just" income. We must doubt, as presumably the authors also doubt, the efficacy of a once-and-for-all distribution. Without a great deal of restriction upon the alienation of property, the course of economic activity would Inevitably result in an undesirable concentration in the ownership of 166Ibid.. p. 195. Ib2 capital* Kelso and Adler propose a number of safeguards and restrictions to prevent reconcentration, but the popu lar acceptance of the virtually untramneled right to alien ate property seems quite likely to provoke fierce opposi tion to the restrictive measures of the Kelso-Adler program from those who would be the supposed principal benefici aries* Without free occupational choice, the Kelso-Adler program might possibly interfere with optimal resource allocation* For example, under ordinary circumstances, an artistically inclined Individual realising that his talents are not such as to enable him to earn a viable income, will turn to a calling perhaps more prosaic but more desired by society* A critical degree of occupational immobility under the Kelso-Adler plan, nay call for the virtual sub sidisation of some individuals* Thus the untalented artist might be enabled to continue as a mediocre painter if he were unable to transfer to some other higher paying occu pation, since the plan would give him a capital estate large enough to furnish him with a viable income* With free occupational choice, rational individuals would allo cate themselves according to the dictates of the price mechanism* A number of times, Kelso and Adler repeat the very errors of some of the writers they criticise* To a degree, they rather rererae the Marxian argument on the solitary productirity o f labor and rexy nearly promulgate the ease arguaent in favor of capital. Carl Kaysen has been par ticularly critical of the Kelso-Adler laputation of 10 per 167 cent of the total product to labor. Kaysen contends that Kelso and Adler are forced to argue that goremaental and union actirities redistribute at least 60 per cent of the national income of the IMited States annually. He maintains that this greatly exaggerates the redistrlbutire role of these two agencies, for In nations such as the United Kingdom and the Scandlnarian countries, state inter vention in the economy is practiced to a greater extent than in the United States, yet Kaysen estimates that in the nations cited, governmental activities redistribute no more than 10 per cent of the national income. Although it nay appear that labor is impinging upon the shares due other factors of production over a period of time, Kaysen contends that the difference between the greater share (70 per cent now as compared with 60 per cent in 1929) of the national income going to labor can be explained by the diminished importance of agriculture in which the return to property is an important element in income distribution. l67carl Kaysen, "The Capitalist Manifesto," The Hew Republic. CXKZYIII (March 17, 1958), 20-21. lMf Kaysen argues further that imperfections in both the labor and product markets tend to cancel each other out insofar as the sharing of income between capital and labor is concerned. When Kelso and Adler's proposition that capital pro duces 90 per cent of the national income is shown to be false, nothing, says Kaysen, remains of the Kelso-Adler argument. Kaysen1 s contentions are supported by many economists who declare that in the long run, a factor cannot receive more than its marginal revenue product. The percentages assigned by Kelso and Adler to the shares of the national income produced by the factors labor and capital vary from those indicated by the famous empiri cal expression of the marginal productivity theory, the 168 Cobb-Douglas production function. The Cobb-Douglas function may be written Q * bl^C1”* , where b and k are positive constants and k is less than one. The values for the constants are determined from empirical investigation. Douglas has made studies of the manufactur ing industries of a number of countries and has concluded that the share of labor and capital in the industrially ■^^Douglas, on. cit.« p. 133 3M advanced countries studied tends to be constant under con- 16Q petitire Market conditions. 7 According to Lawrence B. Klein, the share of labor in national production tends to be equal to the labor 170 exponent in the production function. The results obtained by Douglas from tine series data for the United States indicates that the value of the labor exponent is 0.60 and that the average of the share of labor in the net 171 value of the national product is 0.58. If Kelso and Adler’s contention that capital pro duces 90 per cent of the national Inc one but receives only 10 per cent of it is held to be false, not only does the Kelso-Adler thesis crumble, as Kaysen argues, but their entire work becomes a wholly gratuitous and empty set of prescriptive propositions. Kelso and Adler object to Keynesian economic policy as leading to a laboristlc distribution of income. How ever, they acknowledge the desirability of the ends sought under Keynesian policys Only by raising the general standard of living and creating a widely diffused purchasing power ^-^Paul H. Douglas, "Are There Laws of Production?" American Bcano»ic Re^i«wT XXXVIII (March, 19**8), l-*fl. ^^Lawrence B. Klein, An Introduction to Economet ric^ (Englewood Cliffs, M. J.l Prentice-Hall, Inc., 1952), 1^1Ibid., citing the work of Douglas. I*f6 can the consumption of wealth support mass produc tion in a capitalist economy. Hence If it was nothing else 9 the transformation of the form of distribution from a purely capitalistic one into a partly laborietic one was highly expedient* It kept the economy going and saved it from the , 7p disastrous climax of the cycle of boom-and-bust. ' The authors adopt an underconsumption!st view of the business cycle. Depressions arise because of the inade- 173 quacy of purchasing power in the hands of the masses. They believe that their program will contribute to stabil ity 9 since they define a "viable" income as one insuring that there will be adequate purchasing power in the hands of the populous. Kelso and Adler, writing as they do in the basic spirit of free enterprise, assume the productivity of capi tal to be a sufficient basis to entitle its owners to a reward. However, there are those, as Joan Robinson has indicated, who consider capital to be highly productive, 17I4. but who think that the owner shit) of capital is not. This contention argues not to the logic of the Kelso-Adler pro gram, but to its premises. If it be denied that the owner ship of capital is productive, the entire argument advanced by Kelso and Adler is reversed, and a type of distribution 172I.l.o and Adler, op. cit.. p. 100. 173Ibid*. p. 99. ' Joan Robinson, Raayy on Marvian Economics (Londons Macmillan * Co., Ltd., 19^7), pp. 18-19. Ib7 more nearly like the present one, which they charge to be laboristlc, vould be more likely acknowledged as just. However, the temper of Western society, as revealed in the sociological implications of its lavs, would seem to sup port the Kelso and Adler contention that the ownership of property gives its owner a claim to the income produced by its use. Kelso and Adler, although arguing the productivity basis of a just income distribution, do not acknowledge the long-run implications attributed to the marginal productiv ity theory by other writers. Some economists vould argue that despite monopolistic pressures and governmental inter vention, a factor cannot, in the long run, receive more than the monetary equivalent of its contribution to the productive process. Further, Kelso and Adler do not consider, for what ever it is worth, the Galbraithlan concept of countervail ing power. Galbraith has suggested that in a modern indus trial society, aggregations of considerable economic power (e.g., powerful labor unions and major firms) confront each other in such a way as to offset whatever coercive power 175 each may have. The Galbraithlan thesis suggests that 1^'\John Kenneth Galbraith. Ca.n-1-fcalism— The Concent of^Couq^ y ™ * ^ ( B o s t o n : Houghton Mifflin IMS out of the context produced by the opposition of antagonis- tios blocs of power nay corns rewards in conformity with more competitive market structures• Finally, in accordance with the theory of marginal productivity, we may wonder what would happen to incomes when the amount of capital grows to such a sire that it is virtually redundant as is the case with labor power in some underdeveloped countries. What, then, will be the remedy for those to whom justice no longer affords a "viable" income? Although the general tenor of this appraisal of the work of Kelso and Adler has been adverse, the author of this dissertation is aware of the salutary spirit in which the work of the two writers is offered. Adler's extensive background and erudition in scholastic philosophy is valuable in demonstrating that the ethics of income dis tribution must be argued within the framework of a philoso- 176 phy competent to handle issues of justice. Further Modifications of th e Productivity Doctrine— Raymond T. are and Saloh H. felodaett Standing midway between the marginal productivity ethic and the ordinary equalitarians is the distributive of Baymond T. Eye and Balph H. Blodgett. 176 ' Adler is regarded as one of the foremost present- day American Thomists* 1^9 The aain propositions of the theory of distributive justice advanced by these two authors together and by Raymond T. bye singly are basically such like those advanced earlier by T. H. Carver, bye and Blodgett, how- ever, refuse to accept the strict productivity approach, and at their hands, it receives considerable sodiflea- 177 tion. Carver showed no ideological attachment to increasing equality, merely pointing out that if society was bent upon greater equality in income distribution, it could follow the procedures he outlined, bye and Blodgett, on the other hand, have a definite bias in favor of greater equality in the distribution of income, and a great part of their work is devoted to justifying a more equal income distribution• bye and Blodgett join with Carver and with Kelso and Adler in their defense of the price mechanism as an effi cient allocator of resources. Ho redistributive program should be allowed to interfere with its operation, bye and Blodgett, in company with other economists, believe that increasing equality in income distribution would enhance 178 the operation of the price mechanism. 177 Raymond T. Bye and Ralph H. Blodgett, Gattiiw mnA Ea-m-tng— a Study In itv (Hew York* y. S. Crofts * Co., 1937), pp. 9-10. 178Ibld.. pp. 33-35. i5o Bye and Blodgett do not object to inequality as euch; they agree that sons inequality ie needed to preserve incentive and to allocate properly productive resources.179 It is their conviction: ▲ great deal or the dissatisfaction with the present distribution of incone springs fron the convlotion that it ie not just ■ It ie not so nuch inequality aa such that is objected to, as it is to the kind of inequality we now have* Most people would not object to seeing sons persons receive no re noney than others if it could be shown that the differences had sons sound ethi cal basis. The trouble is seeing those people who do not deserve wealth who have it and others whose poverty is no fault of their own.1®0 The above passage raises the question of what is "a sound ethical basis'* for the distribution of incone? Although Bye and Blodgett address thenselves to this question, they do not answer it with any convincing results* They insist upon a standard by which incone can be adjudged as earned or not, but the standard must not interfere with the opera tion of the price nechanisn, and it ought to be related to l8l productivity* Bye and Blodgett do not accept paynent according to narglnal product as a fair standard; they do concede that there are sound reasons for ^vin^ it to be a fair system, although they deny that this is truly 179Ibid., pp. 39, **5, 52 l8oIt>ld.. p. 39. l8lIbld.. pp. 39, Vl-»t2. -,32 payment according to productivity. 151 Defining "earned" income. The hallmark of the pro gram of Bye and Blodgett Is that Income must be earned. Earned income is defined as that vhich is "received in pay* ment for some socially useful contribution to production at 183 a price not exceeding its normal competitive value." This definition contains the heart of the Eye-Blodgett pro gram. Income must be earned from the pursuit of some socially acceptable (moral) vocation, and it must not be enhanced by the possession of monopoly power. Although the Income share of any of the productive factors is felt by Bye and Blodgett to be earned legiti mately, they attach some important qualifications to this observation. The income on capital is considered as earned income in most cases, but Bye and Blodgett have reserva tions about interest and dividend payments to those who have inherited claims to the earnings of capital, or who have a very large quantity of capital under title, or stockholders who are "involuntary beneficiaries of cor porate reinvestment •" The wealthy, it is charged, do not undergo a sacrifice in providing funds for investment pur poses. This assumption involves a strong interpersonal l82Ibld.. p. Mt l83lbld.. p. 50 152 comparison, which even if well-founded, may remain objec tively unverifiable • Some payment of interest to the wealthy may be justified on the grounds that it contributes to the proper allocation of resources, if that payment deters the rich from dissipating their funds in riotous living or employing them in poorly conceived and executed productive projects of their own design. Landowners, note Bye and Blodgett, contribute no productive services, and thus ground rent is considered by them to be unearned income. In keeping with their commit ment to the ideal of the free market, Bye and Blodgett do not urge the abolition of rent, for this factor payment performs a useful allocational service. Henry George's famous "single tax" is eschewed in favor of an "unearned Increment tax," inasmuch as the former levy would impose an excessively heavy burden on investors who have chosen land as their medium of private investment. Bye and Blodgett, therefore, propose that any increase in land value accruing from the date of the enactment of the tax measure be taxed l8*f away. The idea of noncompeting groups plays an important role in Bye and Blodgett's analysis. The supply of labor as a whole does not affect the rate of wages; the level of l84Ibid., pp. 11^-115 153 wages Is set for a group by Its own particular Membership. Unfortunately for the cause of a desirable Income distri bution, the various forces of Immobility tend to prevent the crossing of group barriers* These barriers demarcating one noncompeting group from another, help to maintain an unjust distribution of income. The authors focus their attention on the lowest three noncompeting groups— the workers of little or no skill. These workers bear the brunt of the maldistribution of income. There are simply 185 too many of them for the tasks to be performed. Conversely, Bye and Blodgett charge that the members of the top two income groups are the recipients of a large measure of unearned income. Competitive conditions do not prevail in the upper echelons of the labor force as they do in the lower. The main force operating to produce the unearned incomes of the members of the top two income groups is monopoly power. Other than meeting this inequity by antimonopoly measures, the authors approve the use of 186 a progressive income tax. Altering the conditions of factor supply. The main stay of Eye and Blodgett's program is the alteration of supply and demand conditions to produce the desired l85Ibid., PP. 36-*fO 186Ibid.. p. 1**7. 15>* 187 distribution of inoone. Whatever the nethod of acoon- plishing this desired end, the authors recognize that the process of altering the supply conditions in the various nonconpeting labor groups will require a tine period likely 1DO to be in excess of a generation. The entire plan is pure Carver. Capital nust be increased by no re saving. New land should be opened up by developing new territories and reclanation. The supply of scarce skills nust be increased, primarily by education, and the supply of low- 189 grade skills must be reduced. The nost controversial part of the Bye-Blodgett pro posals concerns the latter reconaendation, in that it is possible to go only a United way toward the elinination of workers with virtually no skills, unless society is pre pared to deal in an unprecedented way with the source of hnnan beings of below average intelligence. A program of eugenics was unabashedly advocated by Carver, and it is 190 vigorously chanpioned anew by Bye and Blodgett. Con- nenting upon what they conceive to be a social travesty of our tine, they argue: l87Ibid.. p. 165. 188Ibid. l89Ibid., pp. 166-167. 190Ibid.. pp. 168-170. 155 It is hypocracy to play Santa Claua for the street urchins at Christmas time while combatting such movements as those directed toward birth control, greater opportunity for the Negroes, and social ised medicine, which would lift our life out of the slougih* 91 The entrepreneurial Bye and Blodgett hold a lower opinion of the entrepreneurial income share than they do of interest— the share of capital. In part, their opinion may spring from the rather passive role they assign to the entrepreneur. They charge that although the entrepreneur must have the prospect of a profit before him to induce him to offer his services, the correspondence between risk and reward is slight. This charge is con venient for their argument, inasmuch as it bolsters their conviction that the big fortunes are unearned. But the basis upon which Etye and Blodgett pronounce the degree of correlation between risk and reward to be low is not read ily apparent; mainly it seems to depend upon the possession of monopoly power. The instability of the economic system is an attri bute divorcing reward from risk. Fluctuations, whatever their cause, are, state Bye and Blodgett, responsible for changes in profits in no way associated with entrepreneurial 191Ibid.. p. 267. 192Ibid.. pp. 180-18*4- 156 productivity* Chance, they say, is the determinant of the reward of the entrepreneur*^3 This Is a rather curious argument* The vicissitudes of the free market do cause fluctuations that give rise to wide variations In entre preneurial income, hut it is the shouldering of the burden of uncertainty which presses the claim of the entrepreneur to a share of the social income* B|ye and Blodgett, how ever, see no necessary connection between the skill of the entrepreneur and the losses he takes in a depressionary period and his windfalls in boom times* We may wonder what "skills" they have in mind— the skills of a business fore cast er? Although there is something to their contention, it seems likely that they are confusing the function of the entrepreneur with that of the business manager* If the entrepreneur is a skillful predictor of economic events and their consequences, he nay enhance his readiness to take advantage of market changes, and presumably this will favorably affect his income* The skill requisite to run ning an enterprise, however, seems more properly appurte nant to the business manager, who as a laborer, receives wages as his reward* Although uncertainty is important as an element in the claim of the entrepreneur to a share of income, the 193Ibld*. pp. I*f0, 186-192* 157 uncertainty of which Stye and Blodgett apeak ie not that of the Schumpeterian typo* The losses and windfalls arising from economic fluctuations affect all of society as well as the entrepreneur* The loss from a depression is a social one and not one borne by the entrepreneur alone* The entrepreneurial role, as seen by Joseph A. Schumpeter, is ioL intimately connected with the process of innovation, Bye and Blodgett appear to give no consideration to this at all* The peculiar uncertainty borne by the entrepreneur arises from the inability of human beings to know how the market will respond to new products and new processes or how long it will express satisfaction with old ones. Summary, The essence— indeed almost the sole con tent— of the Bye-Blodgett plan is 'a plea for the elimina tion of monopoly power. Their solution is to increase factor mobility and end factor redundancy in certain areas, particularly in the lower ranks of labor. Labor over supply would be alleviated by two means: education and eugenics. In sum, they offer anew the proposal of Thomas Vixon Carver with the added moral commitment to an increased measure of equality. 158 Raymond T- Bve A number of years following the appearance of Bye and Blodgett's joint work, Raymond T. Bye, alone, addressed himself to the problem of distributive justice In his 195 Social Bconoaar and the Price System. In this work, Bye concentrates upon recommendations more specific than those in the earlier book. Bye says of his later vorkx "It is a specialized study, aimed at appraising the possibilities of pricing as a device for guiding the economic process in welfare direct ions. Bye's treatment of distributive justice is part of comprehensive discussion of the welfare implications of a market-guided economy. He is primarily concerned with developing what he calls a "social economy." To this end, he has suggested eighteen different criteria that must be 197 met if an economy is to be considered a "social" economy. We shall note these and discuss them briefly. (1) Wants should be satisfied in the order of their importance. Obviously, in a prosaic economy, dollar votes alone are not enough to insure the proper ranking of wants. (2) No luxuries should be permitted anyone until everyone has his ^ 9 ^Raymond T. Bye, Social Economy and the Price System (New York: The Macmillan Co., 1956). 196Ibid.. p. 30. ^9^Ibid., pp. 12-17. proper share of necessities. (3) Although everyone will be able to earn a viable Income, rewards should be properly related to incentive , so that Individuals may put forth their best efforts. (**) No talent ought to be allowed to go to waste. (5) Any surplus (unnecessary and undesirable income earned by some Individuals) must be appropriated by society for the common good. (6) Capital resources should be fully maintained. (7) Surplus income must be utilized in making additions to the stock of capital goods. (8) At first, investment will increase at an increasing rate, but as the social surplus grows, investment will grow at a decreasing rate. (9) Using forecasting, a concerted attempt would be made to provide for the most urgent wants of the future. (10) Social institutions will be establirtnd to insure that the most progressive techniques are used in industry. (11) All goods will offer a "surplus of some thing worth-while" over the disutility incurred in their 198 production. (12) All productive resources should be fully employed unless needed in reserve. (13) All goods should be produced at least cost. (1*0 All industries should be organized in such a way as to achieve the most efficient operation. (15) All factories should operate at ^3ye*s statement is unclear. Considerations of welfare indicate that production should continue until the marginal utility derived from a good is equal to the mar ginal disutility of its production. 160 the best output. (16) Only the most coape tent personnel using the most efficient techniques should be the aanagers of industxy. (17) Productive factors nust be combined such that the least amount of factors yield the greatest output. (18) Society aust be receptive and give encouragement to the development of advanced technology. Appraisal. Thus ve have Bye's eighteen principles of the social econony* Bye has built his system upon the basic assumptions of the perfectly competitive system. However , he insists that the price system of the classical and neoclassical economists does not comport with justice. In fact, he scathingly denounces those economists who have become so passionately devoted to analyzing the price mechanism that they attribute an inherent ethical superior* ity to the system. Bye questions that payment in accord with the mar ginal contribution of a factor is just, thus sharply split ting with Carver. The main onus of his criticism, however, seems to be directed at the social costs of production which are not adequately represented in their private coun terpart. lye's argument is a curious combination of the pro ductivity and charitable bases of income distribution. Although he Insists that income must be founded on some measure of productive contribution, he expresses, in his l6l present work, greater reservations about the marginal pro ductivity of a factor being that measure than he does in his joint effort with Blodgett* In his later work, he virtually disavows functional distribution as an appro- 199 priate basis for a discussion of distributive justice. He joins Kelso and Adler in declaring that a redis tribution of income has been forced on our society in order to save the free enterprise economy from itself. He does not, however, term the redistribution laboristic, and he does not believe that capital is virtually the solely pro- p A A ductive factor. nevertheless, he seems not to abandon the functional basis of income distribution* He, like Carver, believes in realigning the productivity of and the demand for factors in such a way that functional distribu- 201 tion would become a socially desirable distribution* The price system, which Bye so ardently supports, works correctively, but he notes that it works with 202 "unnecessary cruelty In our time, technological change has made a number of farmers redundant* The farmers have not moved in 199Ibid.. pp. 78-81. 200Ibid.* pp. 81-82. 201Ibid.. pp. 89-92. 202Ibld.. pp. 299*300• response to market stimuli. A gOTerneent (charitable) pro gram has been evolved to insulate agrarian families from the diecipline of the market system* Bye would hope, by his program, to eliminate this type of redistribution, although he might be willing to employ it in the short run. But the present farm program was similarly conceived of as a short-run measure* It is questionable, in the light of experience, that Bye's program would fare any better. There are many considerations involved other than distribu tive justice. There is the doubtful remedy of vocationally retraining workers, particularly those of middle years or older. Workers may resist and resent attempts to send them back to school, and society may well side with redundant workers in their determination to pursue their familiar, if uneconomic, way of life* In such a case, the price system cannot do its work as an allocator; income becomes unrelated to productive effort; and charity rather than justice becomes the accepted norm* VII. THE THEORIES OF THIS CHAPTER— A RECAPITULATION In general, all of the theories of distributive justice discussed in this chapter owe a heavy debt to John Bates Clark and more particularly to T. N. Carver. Despite varying degrees of modification, all of them are founded heavily upon the idea that reward nust have a high degree or correlation with productive effort* All of then would preserve the unfettered operation of the price sys tem* Kelso and Adler are little concerned with, or are not cognisant of the problem of measuring productive contribu tion by the marginal productivity of a factor. Bye and Blodgett question it, but appear to agree that there are good reasons for believing that it is a justifiable measure of the productive contribution of a factor* Bye, however, in his later work, specifically disclaims marginal produc tivity as a measure suitable to determining the just dis tribution of income* He counters with no definite alterna tive method of measuring the productive contributions, although he would base his criteria on rather than functional considerations* He does insist that income must be earned to be just, and he has developed a number of tests to aid in deciding whether income has been earned or not. Carver disposes of the problem of functional versus personal income distribution by holding that whatever the apportionment, the functional distribution is ioao facto just. Implicitly, of course, he accepts marginal produc tivity as a true measure of the productivity or worth of the contributors to the national income* However, he avoids a purely mechanistic approach to ethics by conceding that a just distribution may be an absolutely horrendous 16*+ distribution in tbs eyes of society. If this is so, he simply charges society to change conditions until a just distribution and a socially desirable distribution coalesce. Carver's ethic specifies that a socially desirable distri bution sust be a just distribution, but the reverse is not true. Kelso and Adler, and lye and Blodgett, follow in the sane train of logic. Essentially, the remedy for an unde sirable distribution of income is to aid the troubled fac tor to become more productive. To this end, Bye and Blodgett and Bye alone adopt the Carverian solution of greater factor mobility, training and retraining, and the elimination of monopoly. Kelso and Adler apparently hold scant hope for train ing to improve the distribution of income to labor. Capi tal, in their eyes, is responsible for almost the entire national product; the answer is a redistribution of the ownership of capital. On this course of action, Kelso and Adler split sharply with 5ye who asserts that if wages were what they ought to be, workers would be far better off than they are now. Kelso and Adler's contention is quite the opposite: if wages were what they ought to be, they argue, labor's plight would be far worse. Thus rather than taking measures whleh Bye would follow to give labor (or any other factor) its fair share, they would redistribute the owner ship of capital to individuals, for many people in their 165 capacities as owners of their own labor are too unproduc tive to clain justly a viable share of the national Inc one. The philosophic basis of Kelso and Adler's work is the strongest of all the theories; Its roots In scholastic philosophy have been noted previously In this chapter. Bye and Blodgett tacitly show Much of the sane connltnent. Carver's work, however, is largely devoid of conscious moral attachment to any rationale for incone distribution other than the bland assertion that it nust be "just," although justice nay be unrelieved misery. We conclude, then, that these newer works are prin cipally reformulations of the older narginal productivity theory approach to distributive justice and are thus sub ject to the criticisms directed toward the original straightforward, albeit crude, doctrines of Clark and Carver. The next chapter is a critical consideration of the narginal productivity ethic. CHAPTER IV CRITICISM OP THE MARGINAL PRODUCTIVITY THEORY AS AN ETHICAL PRINCIPLE I. THE SETTING OP THE CRITICISM Criticism of the marginal productivity theory as an ethical principle usually has taken two forms: (1) an assertion that an analytical tool cannot possess intrinsic moral qualities and (2) a criticism of such ethical impli cations as are believed to be attributed to the theory. Some writers have indicated that the ethical frame work of the neoclassical system collapsed with the "dis covery" of patterns of monopolistic competition.^ This view is an oversimplification in that describing the demise of one supposed aspect of the neoclassical system as a "collapse" suggests that the end came as the result of a discovery based on empirical evidence. Actually, the question seems not yet quite settled; furthermore, philo sophical issues are not neatly disposed of by empirical ^Paul Davidson. Theories Aggregate Income Dis tribution (New Brunswick, New Jersey: Rutgers University m s s j i960), pp. 31*32. 166 167 discovery but by new and different ways of regarding things. Paul Davidson, for example, asserts that the neo classical ethic was destroyed with the inception of monopo listic competition analysis. He points out that monopolis tic theory shows marginal revenue to be less than price; hence the marginal revenue produce of a factor is less than the value of its marginal product. In the Pigovian sense, the factors are exploited in that they receive less than 2 the value of their marginal products. There is no surplus product the existence of which can be .attributed to exploi tation. Thus, says Davidson, the ethical basis of neo classical analysis has collapsed because there is no indi cation of who is doing the exploiting.^ The concept of exploitation is a source of needless confusion. Exploitation, as defined analytically, has no necessary ethical content. Whatever exploitation is, it cannot have moral significance if it is purely a form of conventional analytical technique. Thus it would seem unjustified to attribute the collapse of the ethical basis of the neoclassical system to the introduction of monopo listic competition theory. ^he relationship of the technical term "explolta- tion" to distributive justice is considered in the immedl ately following chapter. 3Ibid. 168 The analytical treatment of situations in which the value of the marginal product and the marginal revenue product diverge can contribute to clearer ethical insight, however, for the impact of monopolistic competition theory does not destroy the ethical basis of the neoclassical economics; but it does help to destroy the illusion of an ethical basis. As scientific thought has progressed in all fields, the contention has fallen that there are connec tions between theories purporting to explain natural phenom ena and mankind's numerous ethical tenets. The relation ship of science to ethics is to provide a necessary but insufficlent condition for validating codes of moral behavior. II. SOME MAJOR VIEWPOINTS Walter A. Weisakonf on the Hhie Walter A. Weisakopf has stated at some length his ^If the statement is made that X is good, the quea- ] tion "Why?" arises. If X is good, it must be because a i change in X produces a change in T. The role of science ls: to show that a causal connection exists between a change in X and the produced change in T. A change In T may be alleged to be good by asserting that a change in Y produces; a change in Z. Again, the causal connection nust be demon strated by science* The ultimate ethical questions must i come to rest upon faith. Science cannot provide an ulti mate causal connection. The reason a change in Z is held to be good may represent a scientifically unverlfiable assumption, for example, eternal salvation. 169 reasons why the narginal productivity theory cannot stand as an ethical basis of Incone distribution. Owing to its pertinence to this discussion, his text is reproduced in full* . . . the ethical principle involved in the narginal productivity theory is not based nerely on justice to the individual* The individual supposedly receives the equivalent of his net product as a reward; but it is not the value of his own productive contribution which determines his conpensation; it is determined by the net product of the narginal laborer or factor unit* The narginal product of the narginal laborer depends on the else of the laboring group; no member of such a group is worth more than the contribution of the narginal laborer, whatever his actual product is* Thus reward is commen surate with productive contribution, but produc tive contribution is measured in social terns; one's product as a member of a group is inter changeable with one of the narginal worker* This represents an important deviation from the ethical principle of the labor theory of value* where ideally, an equality is established between effort, product, and reward. This identity and correla tion of product and reward is, to sons extent, nalntalned by narginal productivity theory, where wages and incone supposedly tend to beoone equal to the net narginal product* The difference between the two theories, however, consists in the introduction of a social or group element Into the narginal productivity theory* This theory allo cates individual rewards according to efficiency and productive contribution, thereby asking then appear just to the individual; but it combines then with a social element by making the reward conform to the narginal product which is determined by the sise of the group* This introduction of the social element disturbs the correspondence between reward and individual effort; efficiency is not defined entirely in terms of individual effort but in terms of the group's contribution to the social product* This is another attempt to harmonise the conflict between Individual and society* It can not be successful, however, unless people feel that their occupational status is a deserved one* As 170 this Is often not the case, the marginal productiv ity theory cannot serve generally as an ethieal justification of incomes,^ As is the case with the term "exploitation," much of the problem seems to arise from the troublesome problem of defining justice, Welsskopf appears to believe that jus tice nust accord with each individual's own idea of what is a just reward, or the result of any income apportionment must be unfair. This is not Carver's idea of justice. Carver repeatedly declared that what is just and what one feels to be personally acceptable are not necessarily the same. Carver held that one may be very ill-treated and be dealt with justly. The unhappy income recipient may not agree with Carver, preferring instead the Welsakopf view. It would seem that whatever steps are taken to ren der an income distribution acceptable, either socially or individually or both, there still remains no necessary connection between justice and the marginal productivity theory. Much of tfeisakopf's objection, however, seems to be based upon a source of injustice found in the individ ual 's unwillingness to accede to the justice of any income distribution which the individual himself cannot accept, i Welsakopf orltiolses the attempt to use the marginal | i productivity theory in an effort to harmonise the conflict i | ^Walter A, Welsakopf, The Psychology of Eft^noajoa ! (Chicagoi The University of Chicago rress, 1955), pp. 232- ; 233. 171 between the individual and society* Undoubtedly> such of the attractiveness of the narginal productivity theory as a theory of both Inc one distribution and distributive jus tice stens fron the easy invitation it apparently extends to bring social and individual interests into confomity. The body of econonic doctrine is replete with attempts to achieve social and individual harmony. This is especially the case whenever a philosophical doctrine is expounded as a "natural law." Both Clark and Carver fell into this trap, for somewhat different reasons it is true, but both felt that social and Individual interests could be brought into coincidence using the narginal principle as a guide. Valuation. One notable omission in Welsakopf** criticism is a lack of consideration of the valuation prob lem. His insistence upon the want of individualism in the ethical application of the theory seems somewhat strained. The social aspect of the marginal productivity ethic which Welsskopf finds objectionable is the mere presence of num bers in a given group of income receivers. Uhder the mar ginal productivity principle, it is quite true that this is one of the determinants of individual reward. Inasmuch as this problem can be dealt with by the reallocation of human resources, it would appear to be such more readily soluble than market valuation which also is determinative of factor reward. Market valuation, being a reflection of personal 172 values, this aspect of the distributive problem must be dealt with by changing the personal and social codes upon which Individuals assess value. This problem is Infinitely more difficult than the reallocation of resources. Disagreement on "Productivity" A difficulty in finding a common base for disagree ment between Welsskopf and the marginal productivity ethi- cists is the concept of productivity. The marginal produc tivity theorists, ethlcists or not, accept the "social” aspect of productivity determination. Welsskopf rejects this, insofar as the idea of individual productivity holds. Just what, then, Welsskopf means by "productivity" is not quite clear. It seems to be something very closely akin to "effort." Possibly, under ideal circumstances, "effort" should be the basis of reward. This belief seems to be a common part of many utopian descriptions of society. In the usual society, however, measuring productivity for the purpose of economic reward without reference to that society would seem to be rather unfeasible, at least in our society as presently ordered. Regardless of the basis of reward, however, the failure to establish a common understanding of the meaning of productivity between Welsskopf and the marginal productivity ethlcists seems to preclude a complete resolution of the argument into oppos ing elements. 173 Welsakopf* a own indicated concept of justice causes problems. He asserts that attempts of the marginal produc tivity ethlcists to harmonise the interests between the individual and society will come to naught unless people feel that their occupational status is a deserved one. It may be true that every individual would not feel happy unless such a state prevailed, but in the absence of this highly imaginative condition, justice, at least in the Carverian sense, would be possible. Welsskopf*s definition of justice, therefore, appears to be based upon what the individual feels is best for him. This is implicit in hedonistic utilitarianism and the Pareto optimum, but these two conceptual tools do not help much in the search for a just distribution of income. Justice is not found form ally, mechanically, or easily. Observations of Prank H. Knight Exception to the marginal productivity doctrine as a theory of distributive justice is more soundly taken by asserting, as does Prank H. Knight, that productivity, whatever it is, is not an ethically significant basis for reward. Similarly, he holds that effort forms no neces sary ethical basis of a claim to a share of the social 6 income. Even assuming complete agreement on what is *7nnk H. Knight. Th. Bthla» of Co.Dftttlon and Other Essays (Hew Yorks Harper * Brothers, 1935)* p. IT1 * productivity, there is no ethical justification for assum ing it to be the basis of a fair reward as Knight has declared! Under effective competition, the distribution of the product corresponds with the ownership and use of eeenomlc capacity, regardless of its nature; but this carries no implication of ideal distribu tive justice. That depends on the extent to which the distribution of capaolty is either ideally just or actually beyond human control. There is general agreement that the actual distribution is not just, though little indeed as to what ideal justice would mean. It is also evident that imperfect competi tion is a source of injustice, and that the dis tribution of economic capaolty, the character of competition and the distribution of the product are all subject in some degree to individual and social control As Knight points out, simply ascertaining that a person has received all that is due him is just a start on the ethical problem. Under the criterion of either effort or produc tivity. a person may have received all that is due him, Q and yet the problem of distributive justice remains. Knight'8 exception to any necessary connection between reward based on either productivity or effort and a claim to a share of the social income is grounded in his assertion that an individual has no particular moral claim to the fruits of his toll. Why, asks Knight, should one ^Trank H. Knight and Thornton W. Merrl&m, The Eco- fhwifT and (Hew York: Harper £ Brothers, p. 113. o 0Trank H. Knight. Democratic Action (Cambridge 1 Harvard University Press, i960}, p. 26. m u 175 be entitled to recompense based on personal ability any more than on the basis of Inherited property? Perhaps, oversimplifying the matter, he feels that rewards arise o largely from good or bad luck. Certainly, it is difficult to ascribe any easily understood connotation of moral sig nificance to fortuitous events. Functional Distribution A most commonly stated serious objection to the utilisation of the marginal productivity theory as a theory of distributive justice is that it is wrong in concept to serve as a guideline for justice, because it is concerned with -rnrm-M nw«i distribution— distribution to owners of factors of production, not to income receivers as persons. Bye has raised the question as to whether a reward paid to the owner of a productive factor, in full accord with pro ductivity, can be in accord with justice to the individual. Is payment to the owners of productive factors on the basis of the value of the marginal contribution of those factors to production a satisfactory basis on which to divide the social income among the mem bers of society?10 The Yaluation Problem Questions of morality are questions of values. ^Knight, The Economic Order and Belimion. p. ll*f. 10Haymond T. Bye. Social Economy i md th* Price System (New Torkt The Macmillan Co., 195oJ, p. 37. 176 Therefore, ignoring the problem of value in a discussion of justice is a serious omission. Knight asserts that all values are intrinsically economic: All values are in principle economic, in so far as their pursuit involves ties of means in any form, which may serve a plurality of ends and hence requires apportionment among these. All problems are finally value problems, and practically all values are subject to "diminishing utility" (or importance ) This thinking is echoed with some different emphasis by Walsh: . . . the economic relation of "scarcity" has a much wider application than is realised by non- economists for it holds between any means which we may require and any end at which we may be aiming when the means are not sufficient for the complete attainment of that end. The means required to achieve any of the ends of action— for example, of moral action— may differ greatly among themselves, but they may all be scarce, in the sense that they have to be economised— there "may not be enough to go around ."12 Walsh is in concord with Knight that there are definite similarities between instances of scarcity Involving the usual economic goods and the scarcity involved whan choos ing between objects of moral choice. Knight suggests that valuation is a vicious circle, ethically speaking. Price flows from demand, and demand ^Knight, and Democratic Action. pp. 21-22. 12Vivian Charles Walsh, Scarcity HirM (Englewood Cliffs, Hew Jersey: Prentice-Hall, inc., 1961}, p. 5. 177 flows from price The implication, intended or not, of some economists that the ethical basis of the neoclassical system could better endure under perfectly competitive conditions is highly questionable. Knight, for example, notes: The statement that under perfect competition the free enterprise organisation of economic life would achieve for everyone the best combination of freedom and efficiency does not at all imply that the actual system is ethically ideal or that nothing can be done to improve it.1* The status of the marginal productivity theory as a standard of desert is impaired by assuming the ideal opera* tion of the market economy under perfectly competitive eon* ditions and, at the same time, considering the widespread absence of the moral criteria essential to the judging of an economy on the basis of how justly the social income is distributed• In a discussion of a seldom considered but rather serious indictment of the marginal productivity ethic, Knight declares that even if we assume that the owners of factors are justly rewarded for their services, social valuation can cause a most serious misallocatlon of resources. This is especially unfortunate if the resources are human beings. Knight feels that a society whioh would ^Knight, The Bthlcs of Competition, p. 56. llfKnight, The Economic Qrfar Belial on. p. 105. 178 set artists to work as bootblacks, paying then exactly what they are worth, has failed as a just society just as much as a society which would allow them to pursue art but would 15 reward them as bootblacks. Bren If the economy were to operate In conformity with the perfectly competitive model, the supposed ethical framework of the neoclassical system still would be fragile; the contribution or productivity of a factor as measured by the marginal productivity theory and translated into a money price has no necessary correspondence with a moral or just valuation. The most serious objection is that the money value assigned to an economic good or service and, i hence, indirectly to a factor is a reflection of the per sonal code of buyers whose market power, even with small income differentials, may vary widely from their desire to render distributive justice. The problem of judging the ethics of the market is immensely more difficult than might appear even if the moral element of choloe were partially resolved by assum ing the Latin maxim, vox oopuli. vox Dei est. that is that the majority of the dollar votes correspond with morality. Knight, who has written extensively upon ethical questions in the field of economics, notes that many of the choices 1 * > 'Knight, The Ethics of Competition, p. 5*+. 179 of consumers arise from the operation of the market system itself. The value assigned to an economic good depends, in part, on the baying power, tastes, and the availability of substitutes— all elements largely created within the work ings of the economic order itself. The dilemma, then, as posed by Knight, is how to judge the moral performance of the economic system in terms of itself. . . . the system must be judged by conformity to ethical standards of [the] facts of demand rather than by oonformlty to the demand of .the actual pro duction and distribution of goods .1® Davidson*s contention that the ethical framework of the neoclassical system collapsed with the advent of monopolistic competition theory can be considered to be correct, if it is granted that the ethical content of neo classical economic analysis is a facade. Under patterns of Imperfect competition and impure competition, the economy is confronted by real or imagined product differ- 17 entlatlon, by the power of the "hidden persuaders," by barriers preventing entry to certain economic endeavors, by output restriction— in short, by conditions which thrive upon the human propensity to acquire distinction, even if it must be bought in the market place. Surely, as Knight l6Ibld.. p. 55. term, now in widespread usage, was popular ised by Yanoe Packard in The Hidden Persuaders (lew Yorks David McKay, 1957). 180 says, the final results diverge from our ethical standards— apparently Meaning the commonly accepted moral code of Western society. Wo one oontends, he says, that a bottle of old vine is j worth as much as a barrel of flour or an evening wrap for a potentate's mistress as a dwelling 18 house, but the market may and does say they are. Patterns of Imperfect competition do not in them selves lead to the supposed ethical failure of the neo classical system. They do, however, make it more likely that human vanity and Irrationality can be asserted in the market place, thus widening the gap between economic per formance and the ethical ideal. Competition and th «-fcTibutive Justice— Summary and Conclusion Although the practical difficulties of attaining perfectly competitive conditions present a serious obstacle to any attempt to achieve distributive justice by modifying the pattern of competition, this should not preclude moving in the direction of greater justice in income distribution by establishing, to the greatest degree possible, some of the aspects of the perfectly competitive model. facilitating the mobility of all resources, and mak ing a more complete knowledge of alternatives available to l8Ibid.. p. 56. 181 factor ownara would help to even out rates of reward. There are aone dangers in looking to the fom of market organisation as the source of justice. The simple expedient of ascribing merit or evil to a particular form of market organisation merely serves to conceal more funda mental problems. Inequality and injustice, notes Knight, 19 do not derive from the failure of market competition. Knight*s comment may be too extreme in his implied divorce ment of justice from the pattern of competition, neverthe less, moral imperfection does not originate within or from a competitive framework; the competitive pattern may operate to intensify the market power of persons, either natural or legal, whose taste for the satisfaction of base Impulses exists in inverse proportion to their passion for distributive justice. III. THE ATTACK OH THE ETHICS OF THE MARGINAL PRODUCTIVITY PRINCIPLE A notable example of an attack upon the marginal productivity theory as an expression of just desert is that of the Rt. Rev. John A. Ryan who, from the religious, especially Roman Catholic, point of view, carefully examines and analyses Carver's Smears jp Justice. Since ^Knight, The Economic Qrdey and Religion, p. 105* 182 Carver'a work: represents the apotheosis of the marginal productivity theory as a statement of an ethical ideal, Ryan's objections may be taken as applicable to all ethical prescriptions which are generlcally similar to those of Carver. Byan does agree that Carver's thesis has the merits of simplicity end plausibility but charges that it remains inadequate as a criterion of justice. Ryan's most severe indictment of the marginal productivity ethic is that it is violative of "fundamental concepts of justice and human- 20 ity." Byan's criticism is similar to the objections raised by Weisskopf, referred to earlier in this chapter, namely that the Carver thesis takes no account of the laborer's efforts, sacrifices, or needs. Thus 3yan advo cates a recognition of effort as one criterion of income distribution, although Carver specifically rejected effort. Distribution on the basis of need, besides forming a tradi tional part of the socialist distributive ideal, is quite common to the distributive viewpoint of religiously oriented writers. Byan fears that when a given grade of labor becomes too scares, the value of the [marginal?] 20 Bt. Rev. John A. 3yan, Distributive Justice (Hew Torks The Macmillan Company, 19^2), p. 266. 183 product will fall so low that the worker cannot lire in decency, and he, therefore, castigates Carver's theory for being unjust Byan would be on finer ground to assert that Carver's distributive principle Is non just rather than unjust. If we accept the view that the Marginal productiv ity theory is an attempt to explain income distribution among productive factors and is not an ethical justifica tion for a particular distribution, then it becomes absurd to attribute meritorious qualities or lack of them to it. Carver asserted that the principle comports with the definition of a just distribution of income. However, he was frank to admit, as has been repeatedly stressed, that a just income distribution may not be acceptable— indeed, that people could well die of starvation while receiving "justiceThis concept of justice may be foreign to 3yan and others, but the Carverian definition of justice should not be construed as meaning that Carver approved of human misery. The bulk of Carver's program for distributive justice centers around proposals which he felt, could they be effectuated, would serve to bring justice and hnman felicity into concord. Byan* s objections cure more soundly taken when he 21Ibid 18*+ repudiates the assumption that productivity is an ideal standard upon which to base distributive justice. He joins his voice to the objections of Weisskopf and Knight In asserting: When we speak of the unskilled laborer as getting all that he produces, or all that he earns, we refer not to his concrete product, but to the value of that product, to the selling price of the product. Neither this price, nor any other existing price, has anything about it that Is economically or ethically sacred. In a competi tive market, current prloes are fixed by the forces of supply and demand, which often involve the exploitation of the weak; in a monopoly mar ket they are set by the desires of the monopolist, which are likewise destitute of moral validity* Hence a minimum wage law which would raise the price and value of the product to provide living wages for the unskilled workers, thus Increasing their "productivity" and enabling them to "earn" the legal wage, would neither violate the prin ciple of justice, nor necessarily diminish the compensation of any other laboring group. To be sure, the increased prices might be followed by such a lessening of demand for the product as to employment; but this is another matter which has no direct bearing on either the economic or the ethical phases of productivity and earning power. And the disadvantages involved in the supposition of a reduced volume of employment may possibly be not so formidable socially as those which accompany a large volume of insufficiently paid occupations.22 Byan's objections are a mixture of validity and impreci sion. His contention that there is no necessary ethical content in the fact that a worker may receive the full value of his product is concurred in by many other 22Ibid.. pp. 267-268 185 commentators • Controversy on the Minimum Wage On the problem of a ■iwii* wage, fiyan's dispute with Carver lacks a common point of disagreement • Carver* s position is simple * those who can earn the wage do not need the protection of legislation; those who cannot earn it most be treated as charity oases. He feels that the minimum wage, followed to a logical conclusion would be the downfall of those unable to earn it; they would, in 23 some fashion, be eliminated. For this contention, which out of context seems quite brutal, Carver has been dis- 2b missed by Ifyun as "an ethical pessimist." Carver's economic milieu is a perfectly competitive world. His program of distributive justice calls for the relentless stamping out of monopoly. Further, he wrote long before the advent of monopolistic competition theory— long before the concept of monoposonlstic exploitation was known to economists. Tyan is apparently discussing the concept of the monopsoni8tic exploitation of labor when he says that the minimum wage would not "... necessarily diminish the pi -'Thomas Nixon Carver, Essays in Social Justice (Cambridge * Harvard University Fress, 1^15), p. 1W. o lf 5yan, op. oit.. p. 267. 186 25 compensation of any other laboring group." When he says that the redistribution of income by the imposition of the minimum vage would not do an injustice to workers who earn above the minimum, his concept of Justice is more like that of Knight, but it is something other than that which Carver held it to be. However, Itynn is not wholeheartedly in favor of the minimum wage. He is concerned that it may cause unemployment, although, in the main, he believes that there is some chance that a higher wage may make workers more productive and enable them actually to earn the wage that they are paid by statute. Byan eventually becomes trapped in the marginal pro ductivity ethic terminology. He adds the unexplained assertion that a greater volume of unemployment with higher existing wage rates may be socially preferable to greater employment at lower wage rates. Perhaps he feels that those employed at or above the legal ■iwimi would be in a position to support the unemployables on the basis of charity. Possibly, Byan may not be too far from the posi tion taken by Carver that genuine unemployables ought to be the objeots of charity. One last curio sum in Byanf s statement is his declar ation that any increase in price possibly resulting from the imposition of a minimum wage and which might, in turn, 2^Ibid., pp. 267-268 187 be reflected In a diminution of demand ". • • has no direct bearing on either the economic or the ethical phases of 28 productivity or earning power." With this statement, he seems to dismiss the valuation problem, and in dispensing with it, he comes again closer to Carver*s thesis. Both of these men in effect say that the wage is the thing; they are not concerned with the goods or services produced— beyond broad outlines of social acceptability— to earn a "just" or a "viable" wage. The danger of disregarding the moral valuation of goods and services seems to be a greater fault in those ethical schemes which rest upon "effort" as the basis of reward than those which are rooted in ideas, however vague, of productivity. Be ward based upon "effort," although it comports quite well with individualistic biases, is alto gether too readily divorced from the social element which is an indispensable part of distributive justice. Shimm-nr of the By an-Carver Argument In summation, both Carver and Byan can be said to favor a minimum wage; Carver asserted that his is "natural1 Byan would establish his by legislation. The former wrote; • • . it is one thing to bring about such readjust ments as will enable every normal adult to earn a 26Ibid 188 living wage, and it la quite a different thing to decree a living wage to every such person,27 Byan counters by saying: • • • efforts, sacrifices, and needa are superior to productivity as claims to reward, and must be given consideration in any just scheme of distribu tion, Professor Carver would leave them out of aooount entirely.2® A valid ethical claim surely can be advanced for the superiority of criteria other than productivity as measured by the marginal productivity principle as a basis for dis tribution, but the ethical nature of the distribution based upon the other criteria, whatever they may be, cannot be judged, as Knight has said, by standards of performance originating within the market system. As economic analysis, Ryan's work suffers from a want of rigor. Por example, he says: Even when the poorest paid class is receiving all that its members are at present worth to the employer, an lncreaae in their compensation would not necessarily cons out of the fund available for the better paid. It could be deducted from exces sive profits and interest.2? We can only speculate on what the "fund*1 is that is sup posed to be available for better paid workers; is it a sort of wages fund? More germane to this inquiry is Byan*a use 2^Carver, op. cit■. p. l*+0. 2®Byan, op. olt.. p. 267. 29 It id. 189 of the adjective "excessive1 * to describe profits and Interest. He does not say by what standards they are judged to be excessive. It is an almost universal conon place in works on distributive justice to being with the basic assumption that the reward of labor is too small and that the shares received by other factor owners is too large. The source of this "laborlstlc bias" would be an interesting study In itself. Possibly such conclusions, of which Cyan's is an example, originate from the observa tion of the low level of living endured by persons who earn their livelihood from the sale of their labor power. Prom this observation, one may proceed on the vague urge to establish some type of intellectual symmetry. "If labor is underpaid, capital must be overpaid." Actually, the two may starve together. The real villain may be the consumer who judges the worth of a productive contribution by rather perverse standards. Byan is an example of those critics of the marginal productivity ethic that they are led to denounce the theory as an explanation of distributive shares. Byan appears to feel that he can cast considerable doubt on the theory itself by noting instances when it appears not to work. One oase of Inapplioablli^r, says Byan, is shown in the situation of the man who works alone. Por example, he disputes that the productivity of a dentist can be tasted, for whan the dentist is removed from hie operatoxy, the output of dental services entirely dis appears. Similarly, one can allow the dentist to remain and remove capital— the dental chair and unit. The same result ensues; the output of dental services becomes sero. Byan is raising the problem of divisibility* In the typi cal exposition of the marginal productivity theory, finely divisible inputs are combined in varying combinations to produce a given output. In practice, some inputs have a measure of "lumpiness" about them. An entrepreneur or a business executive may not be very, or at all, divisible. Removal of a rather Indivisible factor may result in a cataclysmic change of output. Here, the change cannot truly be said to be mgrgjn&l. This does not vitiate the marginal productivity theory as properly understood. The marginal productivity principle does not work with mathe matical precision; it is offered merely as an explanation of the broad general tendency of factor prices and levels of factor employment in the economy. If the adjustments themselves are not marginal, we cannot justifiably speak of a theory of productivity* 3r*n, thua, raises an objection which is not strictly in point, but he does raise a valid doubt about how widely the marginal produc tivity theory might be applied in the quest for distribu tive justice, since numerous similar exceptions to its 191 strict application can bs found. Byan* s example, however, is faulty in another par ticular in that he feels that it is necessary to credit either the dentist or his capital with the whole product. The dentist combines in himself all of the faotoral inputs. He. is laborer, capitalist, entrepreneur, perhaps landlord, all in one person. The dentist himself can and does make adjustments at the margin. For example, he may use much labor and little capital to drill teeth with a foot engine, or he may use more capital and less labor by substituting an electric motor and an electric energy for foot power. Finally, he nay substitute a great deal more capital and entrepreneurial risk bearing in buying and operating modem high-speed air powered drills. Thus, in professional prac tice, the dentist most make decisions at the margin to maximise the returns from his practice no less than does the enormous corporate employer. The dentist must estimate the productivity of the factors as he makes adjustments at the margin. 3yan, it appears, is on the verge of confusing personal with functional income distribution. The most antagonising blunder made by Carver in his use of the marginal productivity theory was to argue that the theory can take the measure of a man. The test of the marginal productivity theory: . . . determines how much a man is worth, and consequently according to our criterion of justice, 192 how Much he ought to have as a reward for hie work.30 The theory, in fact, does not determine the worth of a human being In any real sense at all. At moat, it merely indicates the rate of reward and the level of employment of depersonalised unite of social labor. This confusion of personal and functional income distribution by the marginal productivity ethiclsts has done more than anything else to bring their doctrines into disrepute. IV. THE THEORY AS A FIRST APPROXIMATION OF JUSTICE The early twentieth-century British economist William Smart believed that a "rough test" of justice existed in the economic system of the Britain of his day. Somewhat humorously, Smart agreed that the justice meted out was "not that of the City of God, it is true."^ The remarkable thing, thought Smart, was that jus tice was being rendered in a society which was not particu larly concerned with justice. Private property and the free transfer of it, said Smart, makes men more unequal than they are by nature. Here is an Intimation, in ■^Carver, on. clt.. p. 201. ^William Smart, The Distribution of Income (Londons Macmillan and Co., Ltd., ^L923), p. 3z9« 193 contradistinction to Carrer, that men become more dishar monious in their relationships as they move from the natural into the industrial state. Smart's definition of distributive justice is, ". • . that which gives to persons incomes according to the 'economic worth* of the factors which they own.H^2 Smart's principal justification for the distribution he saw in the society around him is based pri marily on other worse distributions he envisioned. At base, he saw the society around him as being so poor, so full of misery, that it was remarkable in Itself that men managed to survive at all. In this unhappy state, the distribution he found: At least . . . is not a distribution to idlers; nor a distribution by force or fraud; nor a dis tribution due to favor of the distributors, or to patronage, or to privilege, or to custom.33 The positive aspect of justice in the then existing distribution of Income was that it had some basis in produc tivity : It is, in some sense, a distribution according to product, and is based on service rendered to the community. And if we had lived in past centuries, and someone had then told us of a country where men as a rule enjoyed an Income because they ren dered services to their fellows, however rough and ready the measure of such services, we should have counted it a fortunate country.-5* 32Ibid.. p. 330. 33lbid.« pp. 323-32*f 3*+Ibid. 19^ Bather than increase the natural state of inequality in which sen find themselves, and which Smart believed is intensified by the Institution of private property, he argued that distribution according to service novas in the direction of equality of incone. The question of how "service” is to be measured is adnittedly difficult. Apparently Smart was willing to con sider "effort" or "pain" as possible justifications for reward, if only there were sons way of neasuring them. Such measurement being unlikely, he would assess the worth of "service" to society by the narginal productivity prin- 36 ciple. In the last analysis, asked Smart, is there any better court to determine a just distribution than the mar ket? Smart attributed a consensus to the owners of the factors. The firm is likened to a nesting place where the factors combine their contributions in a product. In this "meeting" the factor owners agree to accept the demand price meted out to them by the high court of the market. Whatever the market awards them, said Smart, they must 37 accept and divide among themselves. 35lbid.. p# 333. 36Ibid.. p. 32*t. 37Ibid.. p. 325. 195 Smart' • "consensus" misses the entire distributers justice problem: the division— particularly the just dir i si on— of the product among the factors* Moreover, it is entirely inappropriate to an economy characterised by a large measure of Imperfect competition— an economy in which the factor owners do not agree to accept whatever the mar ket will give them, but instead work avidly to cause the market to revise its valuation of their product and their services* Smart omitted a most perplexing problem from the issue of distributive justice. He held: The economic right to life may be conceded to a man who produces as much as he consumes; it must be a moral right to life which allows the pauper, the invalid, and the criminal Smart failed to consider the case of the person who is Impeded in his quest to become worth more, economically speaking. How does the "economic right" to life differ from a "moral right?" At the very least, the pauper, the Invalid, and the criminal cannot be written off as having no claim upon society for their sustenance until we know how much society may be responsible for their condition* Nature must be considered in the problem of economic injustice* The fact that moral dereliction cannot be 3®William Smart, Second Thoughts »f fp* Economist (London: Macmillan ana bo*, Limited, 1910J, p* 2M-. 196 attributed to nature in any Meaningful way, does not lessen the pertinency of this observation, for the impact of the natural order on the marginal productivity ethic is to show that the productivity standard cannot be adopted in a world of people bom with vast genetic differences. Hilton Friedman has pointed out that the marginal productivity theory of distributive justice may have some validity as between individuals in comparable circumstances and with equal opportunities, but when two unequal individuals face unequal opportunities, the justice rendered by the applica tion of the theory appears to be much less defensible. Friedman has written: One man is bom blind, another with his sight; is it "justM that the former receive less than the latter because his productivity is smaller? The difficulty Is that it is hard to see aqy other principle to apply. The fundamental "injustice” is the original distribution of resources— the fact^£hat one man was bora blind and the other If nature is Involved in distributive injustice, the application of a natural principle may give effect to injustice, and the marginal productivity ethic may become an instrument of oppression unless some way can be found to offset the wholly undeserved disadvantages which nature has conferred upon the handicapped. ^Milton Friedman. Price Theory (Chicago: Aldlne Publishing Company, 1962;, pp. 197-198. 197 Plgou on Productivity »« * Desert Plgou gave credance to the idea that productivity has elements of acceptability as a criterion of distribu tive Justice. In the course of a literary mulling over of the age-old question, "What is fair?" he asked, "la it not 'fair* that different people should be alloved to take out of the common pool more or less in proportion to vhat they ifO have put into it?" Plgou was not unmindful that some people by reason of talent, education, inheritance, etc*, are able to put more into the pool and, hence, under the productivity standard of fairness, vould be allowed to withdraw more. He suggested, but did not explore, the solution that those who are greater contributors by reason of some type of self- discipline should be allowed to withdraw more from the pool than those whose enhanced productivity arises from inheri ted talent, physical strength, wealth, or an exceptional ifl market demand for their services* He thus suggested various gradations of productivity, e*g*, productivity hav ing varying degrees of social acceptability* Productivity Itself is subject to a social judgment* Pigou admitted into the productivity standard of 4 hlIbid., pp. 80-81. Beviaited (Londons Macmillan 198 distribution, the natter of valuation, so firmly excluded by many of the marginal productivity ethicists. He affirmed that productivity Bust be judged by a social stand ard; that standard, however, is not to be applied by bald market forces acting to determine the share of income upon such bases as how many laborers are in the market or how badly consumers want a good. The addition he proposed to the usual market appraisal is the social assessment of how a laborer came by the extra units of labor power he may possess, or, more generally, what is the source of the ability of a factor to earn a premium above a standard rate of factor reward. Seemingly, Milton Friedman would stand opposed to Pigou's distinction between the ethical merits of various *f2 sources of productivity. Friedman contends that the distinction between human and nonhuman bases of productiv ity is "largely false and Irrelevant • " Friedman sees no difference between inheriting wealth from one's father and receiving a natural endowment of physical or mental strength. Similarly, says Friedman, no ethical difference can be found in the enhanced productivity of one person being founded on a college education paid for by one's father and the productivity of another person made greater Milton Friedman, Capitalism and Freedom The University of Chicago Press, 1962;, p. l&f. (Chicago: by inheriting a going business. 199 Pranlc H. Knight Knight, economist and philosopher, sees two antagon istic reasons Tor believing income distribution on the basis of productivity to be just. The first basis, he says, grows out of the idea of natural lav. This principle is expressed in Scripture in the precept that one should reap what he has sown. The second basis grows, not out of the notion of natural law common to primitive society, bat out of the much never ide% of human freedom. Mankind must be free to act in accord with the hope of reward or the fear of loss. Knight feels this freedom principle leads to a purely pragmatic basis for distribution on the basis of productivity; it is justified as being expedient, effi- cient— in short, necessary. Knight prefers the argument based on expediency, although he feels it is not often considered, "... because it rests on principles of economics, which the educated lik public passes over for more romantic notions.H Despite Knight's often professed agnosticism as to how Income should be distributed, he asserts, as did Smart, that distribution on the basis of productivity does have ^Knight, The Economic 0-pd«T *»d Religion. p. 110. 200 a measure of justice about it. Effeetire market competition does eliminate arbi trary power, promote freedom and efficiency, put consumers as a body in control of production and distributes burdens and benefits in a way which conforms to one form of individualistic justice. (The Hew Testament— the Apostle Paul speaking— asserts that a man should reap what he sows.) The first concrete economic problem must be to achieve such competition as far as possible. 5 Knight evidently does not regard the presently con stituted economic system as just, for he specifies that the first order of business is to bring about the "work able" competition which would move in the direction, at least, of what he terms a "form of individualistic jus tice.” To Knight, then, the greater the strength of com petition, the greater the likelihood of justice in income di strlbution. V. THE METAMORPHOSIS OP THE MARGINAL PRODUCTIVITY THEORY— CONCLUSION This chapter concludes with a consideration of the process by which the marginal productivity theory came to be regarded as an ethical proposition. The way in which ethical qualities came to be attributed to the marginal productivity theory has been described by William Baumolx ^Ibid.. p. 20*f 201 When the marginal productivity theory first achieved popularity just before the turn of the century, sobs economists attempted to use it as a basis for moralising. It was even suggested that since the analysis showed that every input was paid the value of its marginal product, the distribution under free competitive capitalism must be morally right and just. It is easy to show loopholes in this curious argument, which, for example, implies that there is justice in the landlord * s collection of rent because he happens to own land and land contributes to the production of food I To paraphrase one modem writer, this view represents an attempt to impute virtue to, partial derivatives (the mar* ginal products). ° As an example of an economist who did so use the theory as 1+7 a basis for moralising, Baumol cites John Bates Clark. However, the author of this dissertation contended at the beginning of the immediately preoeding chapter, that Clark, while apparently holding as a personal belief the conviction that the marginal productivity theory comported with distributive justice, stopped short of proclaiming it as such, stating that an ethical inquiry was not within 1+3 the scope of his discussion. The purpose of reiterating this contention is not to claim that Baumol is Incorrect, but to suggest that it is somewhat unfortunate that the ^William J. Baumol, Economic Theory and Operations (Englewood Cliffs, tfew Jerseys Prentice-Hall7 Inc., 1961), p. 293. ^John Bates Clark, The Distribution of Wealth (Hew York: The Macmillan Company, 1^2*f j, p. o. 202 perhaps obscure writings of Thomas Nixon Carver, particu larly bis Essays \r \ Soe-^T. Justice, are so little known to contemporary writers* Carver stands as the pre-eminent marginal productivity moralist* At his hands, the marginal productivity theory was promulgated as a definite ethical precept, adherence to which would always insure justice in distribution* In his works, the marginal productivity ethic is in full flower, not merely hinted at as is the case with the treatment of the theory by Clark* Disagreement on Ethical Content The most blatant form of mechanical moralizing is the ascription of ethical values to an equilibrium posi tion. Why some economists have succumbed to this tempta tion has been explained by Weisskopf: In equilibrium every factor unit receives the equivalent of its marginal product, and thus rewards correspond to efficiency* furthermore rewards are proportional to the sacrifices of labour and waiting* This distributive equilib rium ^presents a morally appropriate situa- Ths position, criticised by Welsskopf, views rationality as the author of goodness, but, at the same time, it places the responsibility for ethical economic conduct upon the entrepreneur. This burden is considerably lightened, however, in that ordinary rational conduct will 203 bring about a just distribution* Entrepreneurs as rely com bine the factors In an optimal allocation, so that once equilibrium is achieved, each factor has a reward which is deemed to be just— this justice coming out of the process of economising itself* As to whether the marginal productivity theory has within itself attributes of^goodness, so that it can tell us what ought to be the distribution of income, opinion has ranged widely, although today almost every economist is quite willing to repudiate the theory as a moral criterion* Tears ago, William Smart noted that despite the "rough justice" he found in the economic system of Great Britain, an explanation of income distribution was no apology for 50 it. Today, Baurnol*s statement is a typical repudiation of the theory as a moral standard: The marginal productivity theory is an empirical hypothesis, and from it no legitimate evaluative conclusions can be drawn without the careful and explicit addition of a set of value judgments which can serve as the criteria of good and evil.7 Tet, there are some very reputable economists who would admit of a relationship of varying degrees of strength between the marginal productivity theory and dis tributive justice* ?or example, Sir Dennis Robertson has ^Snart, The Distribution of Income* p* 331 ** 5lBaumol, loc* oit. said: . . . there ie only a very partial relationship between the theory of factor reward in accordance with marginal productivity and the problem of justice in distribution— even if, unlike Bernard Shaw and others, we take justice to mean reward in accordance with achievement rather than in accordance with need.'*2 John Maurice Clark, perhaps not surprisingly in view of his familial status, has cited what he believes to be an ethical element in the marginal productivity theory: In the matter of incomes, the marginal- productivity theory— companion of marginal util ity— rounded out a system in which, under com petition, factors of production were allocated where they would be most productive, and their owners, including laborers, received the worth of their marginal contribution to the joint product. And this is not without an ethical element, though few would claim that it settles all ethical problems. It is the ethics of the f arable of th* that of The worker n the vineyards."3 The parable of the talents is a frequently cited scriptural approbation of the ethic of from each according to his ability and to each on the same basis. The Necessary Presence of an in hiwtribution Much cloudiness in thinking about the problem of distribution can be dispelled by the realization that some 52Sir Dennis H. Robertson, Lectures on BcqtiomIq Principles (London: Staples Press LimitsdL, 1 9 5 8 ) , Ii, 1 5 ^ . 53John Maurice Clark, Economic Institutions and Human Welfare (Hew Tork: Alfred A. Knopf, 195/), p. 55. Italics added for emphasis. 205 ethical concept Is at the hasls of our existing Income dis tribution. The scheme of "income distribution" in the sub human world is not acceptable to man. There is a tendency for the strongest to get the most and to perpetuate itself. Yet, in the subhuman world, we pe roe I've such an was sing variety of natural checks and balances existing between its members that a "balance of nature" prevails, with many ostensibly weak and small species surviving with the strong. Human beings are not willing to submit themselves to the balance of nature. Mankind has had to formulate his own code in order to live with himself. It is sometimes said that nature does things for which a man would be hanged, as if this somehow demonstrates the moral imperfection of nature. To say that nature has no morality, is not to say that nature is evil or unethical. Nature is nonethical. Ethics pertains only to the human world; ethical conduct exists only in the realm of human contemplation. Heists place their faith in a divine power as the source of ethi cal prescription. Humanists find the source of right con duct in the inner-direct ion to good which they feel human beings cone to possess more and more perfectly over time. When mankind refuses to accept the distribution meted out by the forces of nature to all other living creation, the inferential applicability of ethics to that distribution established in the human sphere is manifest. 206 J. M. Clark's assertion that the marginal productiv ity theory embodies the ethies of the Parable of the Talents is not, on the face of that statement, tenable. To accept this viewpoint, is to impute virtue to partial S i i - derivatives, as Baumol has suggested. To say, however great the temptation, that L<?Q/?L) * Q - C(?Q/aC) is the definitive statement of justice is to assert that distribu tion conforms to a theory rather than that the theory con forms to distribution. Furthermore, it is possible to argue that if the marginal productivity theory were put forth as an ethical norm to which distribution ought to conform, it would lose much of its validity as a theory of the sharing of income which some say that it is. There is no necessary connection between cm empirical hypothesis of observed phenomena and what some ethical system asserts should happen. All that the marginal productivity theory can be said to be is a hypothesis which economists have devised either to explain the distribution of income per ceived in the economy or to explain factor demand. A theory properly attempts to explain a situation that exists; it is not the cause of that situation; neither does it sup ply the moral basis for the situation. "Science," say the methodologists Goode and Hatt, "... can only tell us how ^Baumol, loc. cit. to achieve goals; it can never tell us what goals should be sought."" Science can help, however, in supplying the ethical justification for a course of action by demonstrat ing the causal connection between a desired end and the means for achieving it. In economics, the distribution of Income is a fact; the marginal productivity theory Is an attempt by scholars to understand that fact better. If a different distribution of Income is desired, then, the marginal productivity theory may be of some service in helping to embark on a course to that desired income dis tribution . The Ethic of Productivity To try to force the marginal productivity theory to become an ethical prescript seems an unduly cumbersome task. It would require the addition, as Baumol says, "of a set of value judgment which can serve as the criteria of good and evil."^ These value judgments cannot be found in the economy itself, for a thing cannot be judged in terms of itself. Therefore, the search for an ethic must turn elsewhere. As J. M. Clark has suggested, one source is Soripture. The Parable of the Talents can be used to 55William J. Goode and Paul K. Hatt, Methods in Social Research (New York: McGraw-Hill Book Comuanv. Inc.. 1952;, p. £7. ^Baumol, loc. cit. 208 supply the ethic of distribution on the basis of product iv- confront&tion with ethics, It seems useful to consider the theory as an explanation of Inc one distribution in an economy which has accepted productivity as a basis for income distribution. This statement is, of course, subject to wide exception. To the extent that society has chosen productivity as the basis for distribution, it has based its choice on the foundations noted earlier. Among the most obvious ethical presuppositions undergirding the writ ings of the marginal productivity ethlcists is a basic com mitment to what is often described as a "Calvinistic ethic" of work and life. It is not happenstance that the marginal productivity ethiclsts enjoyed their greatest vogue at the turn of the century. Carver's predilection for the Protes tant Ethic is implicit in his major works and is abundantly explicit in his The Religion Worth Having. Carver asked, "What is the best religion?" and answered his own question: "That is the best religion which (1) acts most powerfully as a spur to energy and (2) directs that energy most pro- 57 ductively." Therefore, the moral human being will live by "the discipline of the fellowship of the productive (Boston ity. To bring the marginal productivity theory into a lialan Worth H&vigg life," which, according to Carver, is "the highest form of 58 Christian fellowship," The test of performance for such a life in an industrial society, Carver found in the Parahle of the Talents.^* Thus, according to both J, M. Clark and T, N. Carver, the value judgment to be applied to the mar ginal productivity theory is that exemplified by the Parable of the Talents, and, we might add, the great tradi tion of work and wealth so much stressed in Western Society since the time of the Reformation, In Defense of the Marginal Productivity Ethicists On the basis of a closer reading of the marginal productivity ethlcists, it becomes less clear that they attempted the blatantly spurious philosophical tactic of imputing virtue to marginal products. Obviously, they did supply a set of value judgments, although they may not unequivocally stated what they were and from what source they came. Nevertheless, one does not have to delve deeply to discover their ethical premises. The idea of the good and the just existed before the concept of marginal prod ucts was developed. At the hands of the marginal produc tivity ethlcists, the theory was worked and strained 5elt>ld.. p. 133 ?9Ibld.. p. 59. 210 severely, but It is inaccurate to say, the author thinks, that they regarded the theory as supplying the ethical basis of their convictions; rather they believed that they happily had fallen upon a theory which they could use to support their own concepts of justice. The unreal assumptions of the neoclassical school, namely full •employment, the reduction of economic profit to sero, the fluid mobility of capital and labor, the assumption of completely flexible wage-rates and prices, all worked to dethrone the theory as a statement of dis tributive justice. With full employment obviously not a fact— especially at viable wages for all— as powerful fluctuations of economic activity showed themselves to originate deep within the system itself, it became increas ingly apparent that crude moralising from the marginal pro ductivity theory was utterly specious. It was these reali sations much more than the development of monopolistic competition theory which spelled the end for the marginal productivity morality. How much more devastating is the realisation that it is impossible for a factor unit to obtain the employment requisite to its becoming productive than is the analytical distinction between the value of the marginal product and the marginal revenue product. The marginal productivity theory as a theory of distributive justice falls for a more cogent reason than 211 that an external ethic must be applied to it, or that the economy is unstable* It is a theory of functional distri bution. It does not fall because productivity is a false or evil ethic, or because sons other ethic is morally superior. It falls because ethics apply to relationships betveen human beings. Personal Income distribution is not comprehended within the marginal productivity theory. Surely, human beings ultimately receive the income, but under the theory, they receive income shares not as persons but as owners of factors of production. Economists have stated that there are three or four factors of production. As justice and ethical conduct exist only between human beings, it is difficult to believe that a distribution on the basis of function should of necessity bear any relationship to a just distribution. It is not enough to assert, as does Weisakopf, that the marginal productivity theory is ethically defeated as a criterion of justice to the Individual because of the social element involved. Ethical conduct consists in a relation ship between sentient beings— a relationship either social, religious, philosophical, or a combination of all of these. Much of the problem with the productivity ethic itself lies in defining productivity. Mich misery la caused by the apparently poor job done by society in deciding who and what are productive. Any purported theory of justice 212 which fails to consider human valuation— particularly its many deficiencies— fails to be a theoxy of moral desert. The elimination of the marginal productivity theoxy as a theoxy of distributive justice does not impair its standing as an economic theory. It is one of several theo ries devised by economists to explain the distribution of income on a functional basis or the demand for the factors of production, and it must stand or fall on how well it performs either one or both of these tasks. CHAPTER V THE THEORY OP EXPLOITATION I. THE SETTING OP THE PROBLEM Exploitation la a Highly colored word. In the con-* text of economics, this is unfortunate, for its meaning in the technical sense has no necessary relationship to con siderations of social justice. Even in the strict techni cal sense, economists have found it necessary to redefine the expression. These problems, among others, hare led to proposals that "exploitation" be stricken from the vocabu lary of economics and that a more colorless and accurate term be substituted in its place This chapter will consider exploitation in the tech nical economic sense and will consider its relationship, if indeed it has one, to distributive justice. The subject matter of this chapter has a strong affinity with the thinking of the marginal productivity ethlcists, and, therefore, much of the critical comment made with reference 1 Gordon P, Bloom, "A Reconsideration of the Theory of Exploitation," Readings in the Theory of Income Distri bution , eds, William Kellner and Bernard P. Haley (Philadelphiat The Blaklston Company, 1951)9 P* l1 +5. 213 21b to the marginal productivity ethic in Chapter III is appli cable here. "Exploitation" as commonly understood implies that someone is being deprived of his rightful property. Eco nomic exploitation is commonly thought of in connection with labor, although it is entirely possible for any factor to be exploited, and in economic analysis, the exploitation of factors other than labor is frequently considered. Marxian and Non-Marxian Exploitation Much of the preoccupation with labor is undoubtedly derived from the work of the most earth-shaking of all writers on exploitation, Karl Marx. In Marx, the only possible object of exploitation is labor, because labor is 2 the source of all value. The owners of the other factors of production— capital, land, and entrepreneurship— so fundamental to the neoclassical system and its modern reformulations are not contributors to value in Marxian economics. Persons receiving income for which they have contributed no labor, must be taking from labor income rightfully belonging to it by act of creation. To Marx, it seemed obvious that property owners— primarily the owners of productive equipment— were the receivers of 2 Karl Marx, Capital, trans. Samuel and Edward Aveling (third edition; Hew York: The Modem Library, n.d§), Vol. I, p. ^5* 215 Incomes which they had not earned. Hence, capitalists were condemned as exploiters of labor. Labor produces a surplus over and above that necessary for the working class to maintain and perpetuate itself. This surplus is expro priated by capitalists, said Marx, bitterly noting that, "to be a productive laborer is therefore, not a piece of 3 luck, but a misfortune." The more productive the wo ike r, the greater the Injustice • The purpose of discussing the concept of Marxian exploitation here in a limited way has been to contrast the term as used by Marx with the usage of Pigou and subsequent economists. The source of technical non-Marxian exploitation i f theory is Pigou*s T^nnnaics of Welfare. Pigou did not share the Marxian assumption that labor is the source of all value. Other factors are productive, and other factors may be exploited. When the Economics of Welfare first appeared in 1920, a number of years were to pass before the pioneering work of Edward H. Chamberlin in America and Joan Robinson in Creat Britain was to cause the recasting of much of economic theory. 3Ibid.. p. 558. **A. C. Pigou, The Econn«<ftH of Welfare (fourth edition; Londons Macmillan and Co., Limited, 1952). 216 Basle Theory km we have seen in the chapter on Marginal produc tivity theory, it is possible for all factor owners to receive the value of the Marginal products of their factors! units under conditions of pure conpetition, that is, a fac tor owner can receive the Monetary equivalent of the addi tion Made by a factoral unit to the value of the output of the euploying firm. The value of the Marginal product of a factor is a special case of the Marginal revenue product. The Marginal revenue product attributable to a factor is derived fron the Marginal physical product of a factor and the Marginal revenue to its euploying firm resulting from the sale of that Marginal physical product. The negative sloping por tion (the relevant segment) of the Marginal revenue product curve of a factor reflects the influence of the Marginal physical product curve which in turn possesses a negatively sloped segment owing to the law of diminishing returns, or more particularly, the law of diminishing marginal physical product. If the marginal physical product attributable to a factor is multiplied by the marginal revenue of a firm arising from the sale of the physical product of a factor, the result will be the marginal revenue product of the factor or the addition to total revenue made possible by 217 the sale of the physical product of the factor, conceived of as a Marginal output. Thus, for labor: HRP1 * MPP-l x MR, and for capital: MRPC * MPPC x MR. If the employing firm is a pure competitor, its marginal revenue is equal to average revenue or price at all levels of output. Thus, with price equal to marginal revenue, the equation nay be written: MRP1 » MPPX x P. The economic meaning is that under purely competitive con-' dltions, a factor owner is able to receive the value of the contribution to the revenue of a firm made by the factor, for, in this situation, the value of the marginal product is always equal to the marginal revenue product. II. PIGOVIAH EXPLOITATION The concept of exploitation arises if a factor is somehow prevented from obtaining the value of its marginal product. This is what Pigou had in mind when he wrote: . . . wages nay be unfair in some place or occupation, because work-people are exploited, in the sense that they are paid less than the 218 value which their marginal net product haa to the firms employing them.' In figure *+, at wage rate OW, the firm employe 01 labor units, and the labor units receive the value of their marginal product. If, instead, the workers are paid a wage rate of 0WV, they receive less than the value of their mar ginal product, equal in amount to the shaded area. Two things are of interest in the passage quoted from Pigou. In the first place, workers are said to be "exploited" if they receive less than the value of their marginal products. Exploitation means that a factor owner receives less than the value of the marginal product of his factoral units. Thus, this highly colored word, usually taken to mean some form of theft, as exemplified in Marx, comes into the technical and supposedly nonemotive language of economics. It w^s most unfortunate for the cause of distribution theory, In which mistaken, inexact, or inten tional obfusoatlon has muddied up economic analysis, that "exploitation" was chosen as the technical term to describe this situation. In the second place, Pigou used the word "unfair" to describe the payment of less than the value of the marginal product to a factor owner. He introduced a description of ethical content which suggests that it is improper to pay a factor owner less than the value of the 5Ibid., p. 551 Wage Bate Labor Units FIGURE b VALUE OF THE MARGDTAL PRODUCT OF LABOR 220 marginal product of his factor* Therefore, the choice of the word "exploitation" to describe this situation nay have been qLuite deliberate on Pigou*s part* The idea of a factor owner receiving less than the value of the marginal product of his factor seemingly sug gests the connotation of moral default. If a factor owner receives less than the value of the marginal product of the factor, it would seem that the "exploited" portion must be received by some other factor owner* The mistaken ver sion of this "exploitation" concept pictures an avaricious employer holding out from his labor force an amount such as that shown by the shaded area in Figure * f r . Although the most immediate impulse might be to agree that when a por tion of that income which a factor has earned is withheld from it, that this is unfair, another problem arlees when the magnitude of the wage rate is considered in conjunction with exploitation, for one might live very well while being subjected to exploitation, and another might receive every cent to which this type of thinking would entitle him and starve* Furthermore, one could starve while performing a socially acceptable function and be in no sense exploited as Pigou used the term. Figure 5 depicts no change in the income of labor despite the removal of the Plgovian concept of exploita tion* If the derived demand curve of a firm for labor is 221 Wage Bate W VHP VHP 0 L Labor Units FIGURE 5 SHIFTS IN THE VALUE OF THE MARGINAL PRODUCT SCHEDULE represented by VMP^, the firm would hire OL units of labor at the equilibrium (nonexploitatlTe) wage rate OW. Let us assume that labor is exploited in the Pigovian sense such that it receives only OW* as its wage, the amount WW' being withheld from each laborer. Next, assume that the demand curve for labor drops to the position shown by the VM?2 curve. The curve nay drop due to a diminution in the pro* ductivlty of labor, or the demand for the product nay have dropped causing price to fall. Now, assuming that the mem bers of the labor force remain at their jobs, labor is no longer exploited in the new equilibrium position, but it is not better off than before; each laborer still receives the same pay, OW', and no one has lost his job. Of course, we could postulate that labor would be exploited after the establishment of the new equilibrium position, or we could assume that the derived demand curve for labor has shifted even more to the left, so that labor could be unexploited and be worse off than before, that is, suffer a wage cut and some unemployment as well. The main purpose, however, has been to show the inability to relate the Pigovian con* cept of exploitation to any particular level of welfare. III. THE IMPACT OP MONOPOLISTIC AND IMPERFECT COMPETITION THEORY The most serious assault on the Pigovian concept of exploitation came after the appearance of works dealing 223 with patterns of Imperfect competition. So serious were these attacks, that the concept of exploitation, as described heretofore, had to be redrawn if a scrap of it were to be saved. The impact of the work of Edward H. Chamberlin and Joan Robinson on the marginal productivity theory of dis tribution was to show that under conditions constituting a departure from the purely competitive norm, the owners of productive factors could not receive the value of the mar ginal products of their feu:tors as income shares. Empha sis should be placed on "could not" for the inability of the factor owners to receive the value of their marginal products comes not by the action or intention of anyone. Blame or moral default cannot be imputed to any "exploiter." The situation arises in the pattern of competition itself. Honcompetitlve patterns are so widespread and the competitive norm so rare, that the Pigovian concept would record exploitation as a nearly ubiquitous economic condi tion. Thus applied, the concept of exploitation would become meaningless. Despite apparently impending doom, the spirit of the exploitation idea was salvaged, for monopolistic com petition theoxy showed that it is possible for the produc tive factors to receive their marginal revenue products as factoral rewards. Hence, exploitation has now come to 22*f ■•an the payment to a factor owner of lees than the margi nal revenue product of the factor. When the production function can be expressed mathe matically as a linear homogeneous equation of the first degree, the sum of the factor payments will exactly exhaust total product. Each factor owner receives the value of its marginal product as ita income share. Thus: PQ = R = P[L(#Q/*L)] + PtC(?Q/?C)] , where R is the total revenue to the firm, P is product price, Q is the amount of the product, and L and C are the factors labor and capital, respectively. The equation can not be used to describe an imperfectly competitive situa tion. The monopolistic competitor cannot pay all of his factor units the value of their marginal products; to do so, would more than exhaust the total revenue which they com bine to produce. Thus: R < P[L(aQ/*L)] ♦ P[C(aQ/pC)]. The sum of the values of the marginal products of each fac tor is greater than the total revenue to the firm. In an imperfectly competitive situation, no factor can receive the value of its marginal product without impinging upon the reward of another factor. In employer would never find it profitable to pay a factor the value of its marginal 225 product• We have seen previously that the value of the Mar ginal product is eimply a special case of the marginal revenue product, this case obtaining when a firm la a pore competitor, that is, faoes an infinitely elastic average revenue curve* In this case, the marginal revenue curve being equal to the average revenue curve is infinitely elastic also* The monopolistic competitor, however, faces a negatively sloped average revenue curve* To sell more, he most lower price* Consequently, marginal revenue falls faster than price* The consequence of this situation is for distribution theory is that the marginal revenue product curve of a factor hired under imperfectly competi tive conditions falls away faster than does the curve depicting the value of its marginal product. The value of the marginal product of a factor la equal to the selling price of the product multiplied by the marginal physical product of a factor. The marginal revenue product of a factor is equal to the marginal revenue obtained from the sale of the incremental unit of output resulting from the addition of a unit of the factoral input multiplied by the marginal physical product of the factor as that particular level of factor use* Since, under pure competition, the marginal revenue curve is infinitely elastic, the only reason for the negative slope of the VHP (MRP) curve is 226 the negatively sloped factoral Marginal physical product curve. When the average revenue curve also Is negatively sloped, the value of the marginal product curve will fall faster than it would under competitive conditions, assuming that the marginal physical product of a factor remains the same at each level of factor use. This does not mean, as will be explained later, that an individual factor is less well paid under imperfectly competitive conditions as com* pared with the case when the average revenue and marginal curves are equal and therefore infinitely elastic. Under monopolistically competitive conditions, the marginal revenue product of a factor will decline even faster than the value of the marginal product since the marginal revenue curve falls away faster than the average revenue curve. In Figure 6, the marginal revenue product curves for a pure and monopolistic competitor are compared. The curve MRP0 is the marginal revenue produot curve for the pure competitor; its negative slope reflects only the negative slope of the marginal physical product curve. The curve MRPm is the marginal revenue product curve of labor employed 6y a firm in monopolistic competition. The curve MRFb falls away faster than MRPQ because of the added influence of the negatively sloped marginal revenue curve. The curve MFC is the marginal factor cost of labor to the 22 7 $ MRP MFC V MFC * AFC MRP, 0 L* L Labor Units FIGURE 6 MARGINAL REVENUE PRODUCT CURVES OF A PURE COMPETITOR AND A MONOPOLISTIC COMPETITOR COMPARED 228 fin; its slope of infinite elasticity indicates that the fin Is able to obtain all the labor units of a given grade it desires without affecting the wage rate. At a wage rate of OW, the competitive fin will hire OL labor units, and the none onpe tit ire fin will hire OL* labor units. The indication is that factors are underemployed in a less- than-coapetitlve situation. This, of course, has important Implications for the welfare of both labor and consumers. Figure 7 compares the curves of the value of the marginal product and marginal revenue product of a factor to the monopolistic competitor. The MRP curve is less than the VHP curve at all levels of factoral input, reflecting the faster rate of decline of the marginal revenue curve as compared with the curve of average revenue. The graph depicts the fin as a monopolistlcally competitive seller but also as a competitive hirer of labor. With the wage rate at OW, the fin will hire OL units of labor, and labor will receive its marginal revenue product, LA « OW, which is less than the value of its marginal product LB at the level of resource use OL. We shall now consider the apparently paradoxical situation in which sach factor produces more than its owner receives as Income (and is thus exploited in the strict Flgovlan sense) and yet, after all the faotor owners have been paid, nothing remains for any "exploiter" to gather in. 229 MRP * MFC W MFC VMP MRP 0 L Labor Units FIGURE 7 AFC VALUE OF THE MARGINAL PRODUCT AND MARGINAL REVENUE PRODUCT COMPARED 230 We have seen previously that for the payment ot fac to r owners to exactly exhaust total revenue, the production function aust be such that it can be represented by a linear equation homogeneous in the first degree. The economic meaning of such an equation is that a small proportionate change in all the factors will cause a proportionate change in total product or revenue. In addition, average costs and revenues must remain constant. Average revenue for the pure competitor is always constant at any output. Average costs are constant at the minimum of the average cost curve, this point being tangent to the average revenue curve of the pure competitor. It is obvious that with any degree of negative slope in the average revenue curve, tangency between the minimum point on the average cost curve and the average revenue curve cannot be established. Moreover, as the slopes of different average revenues curves become steeper, the greater becomes the rate of decline of the addition to revenue obtained from selling additional units of output. Thus, the greater the departure of the demand curve from the horisontality of its position in pure compe tition, the greater the divergence between the value of the marginal product of a factor and its marginal revenue prod uct at a given level of output. Hences \ SVMPs > TH, and 2 MRP a ■ TR, 231 because under monopollstically competitive conditions, SMPP x P > :£MPP x MR, since AH MR always. Under monopolistic competition, all factor owners can obtain their respective marginal revenue products owing to the fact that the hirer of the factors is interested in the changes in revenue which changes in the level of factor use bring about* So long as the marginal revenue product of a factor exceeds its marginal factor cost, (so far assumed to be constant), it will be profitable for the employer to continue to hire the factor* It will not be profitable for the employer to hire any factor to such an extent that its marginal factor cost exceeds its marginal revenue product* Thus under monopolistic competition, it is possible for all factor owners to receive the marginal revenue products of their factors. Raoaatinff tha Equation of Income Distribution The equation showing the distribution of income to the factor owners can now be recasts R - L(?R/?L) + C(?R/?C), where R is the total revenue of the firm using, for this illustration, two factors, labor, L, and capital, C* Thus, for example, 3R/9L is the marginal revenue product of the factor labor, it being understood that since R * IQ, 6 9R * ?PQ. 232 Our conclusion, then, is that the Pigovian concept of exploitation— in vhlch laborers receive less than the ralue of their Marginal product because employers are with holding unjustifiably a part of labor's due is not, as Chamberlin says, "appropriate to monopolistic competition, 7 where these conditions do not hold." Chamberlin adds: Here [under monopolistic competition] all factors are neoessarily "exploited" in this [Pigovian] sense that total payments may be brought within the bounds of the amount aTallable to be paid; it would be impossible for employers to arold the charge of "exploitation" without going into bankruptcy.* Thus the Pigorlan concept of exploitation has now for about twenty years come to mean the payment to a factor owner of 9 less than the marginal revenue product of its factor. The marginal revenue product attributable to a fac tor must embody that change in price which is necessary to dispose of another unit of output, and, at the same time, include the effect of the change in quantity sold resulting from the change in price. Hence, the marginal revenue product of labor would be shown by the sum of P?Q/?L ♦ Q?P/?L. In the case of the marginal revenue product under pure competition, we are not concerned with the second term because no change In price is neoessary to sell more output. Added together the two terms give us the familiar ?PQ/*L « £H/pL, which is the marginal revenue product of the factor labor. ?Bdward H. Chamberlin, The Theory of Monopolistic Competition (Vol. XXXVIII of the Harvard Economic Studies. seventh ealtlon; Cambridge: Harvard University Press, 1?^), p. 183- 8Ibid. 9 Alan M. Cart ter, Theory of Wages and Employment (Homewood, Illinois: Richard D. Irwin, Inc., 1959)> p. 65. This revision of tbs Pigovian exploitation concept does not simplify the problem of justice in distribution by simply declaring exploitation not to exist unless the factors receive less than their marginal revenue products. The existence of monopolistic conditions complicates rather than simplifies the issue. IY. DISTRIBUTIYE JUSTICE IN THE THEORY OF MONOPOLISTIC COMPETITION Although it is possible for a monopolistic competi tor to operate with only normal profits, that is, such that the average total cost curve Is tangent to the average revenue curve, it may be perfectly possible that above- normal or monopoly profits may persist for an extended period. This is particularly likely the higher are the so-called "barriers to entry The existence of an above-normal profit is a possi ble source of improved income distribution. Regardless of what is done about it, it is often ephemeral, being competed Barriers to entry can be placed in three broad groups according to Joe S. Bains scale eoonomles, "abso lute-cost" advantages, and product-dlfferentlatlon advan tages. The higher are the barriers to entry, the mors secure a firm Is from the potential competition of would-be rivals. The longer the barriers can be made to persist, e.g., the renewal of a patent, the greater Is the possibil ity that monopoly profits can be maintained. See Joe S. Bain, Qvyymieatlon (New Torks John Wiley * Sons, Inc., 19>9}, p. 2bo. 23*f away or lost as consumers* tastes change. But above normal profits may, for the reasons mentioned in the footnote, persist and become monopoly profits. Hidden within the pages of Chamberlin's Theory of Monopolistic Competition, is his proposal for the use of monopoly profit— a proposal that the author of this disser tation holds to be Chamberlin's contribution to the litera ture of distributive justice. One possible employment of a monopoly profit would be to use it in improving the compensation of the hired factors. If, however, the entrepreneur loses his monopoly profit, he will become the exploited factor, for giving up part of his share will mean that he no longer receives his marginal revenue product. Perhaps the factors other than the entrepreneur could realise the old Pigovian ideal of receipt of the value of their marginal products, but it is also quite likely that this would be impossible for all of them to do so despite the distribution of the monopoly profit. Chamberlin objects to the sharing of the monopoly profit with the hired factors; it would, he says, result in uneven rates of factor reward for the same service in different firms. Chamberlin's proposal is that the monop oly profit should be eliminated by a price adjustment in 235 favor of the oonsuier^ Chamberlin, holds that the con sumer ought to be the object of Income redistribution. The real income of consumers will be made to rise by the reduc tion in the prices of Items purchased from monopolistic profit makers. In the language of indifference curve analysis, the consumer can advance to a higher indiffer ence surface (proceed to a higher level of welfare) as his "budget line" shifts in response to the downward price adjustment • Pigure 8 shows how a consumer moves to a higher level of welfare as a result of a downward adjustment in the price of Good X. The consumer's budget line shifts from AB to AC and establishes tangenoy with indifference curve II. The consumer now purchases OX* of Good X and OT* of Good T in place of quantities OX and OY, respec tively, the former "best" possibilities open to him. The resultant increase in welfare is the same as that which would have been produced had the consumer been the recipient of an increase in money Income depicted by the dotted budget line PG. Owing to the maintenance of the price relationship between Goods X and T he would have as a result of the decrease in the price of Good X; rather he would buy OX" of Good X and OT" of Good T. However, the 13-Chamberlin, loc. cit 236 P A Y" II Y C I" X X* B G 0 FIGUBE 8 CONSUMER ADJUSTMENT TO INCOME CHANGES 237 Increase in welfare is the sane, for in either ease, the consumer establishes the tangency of his budget line with indifference curre II. Thus we can say that the result of a price reduction to the consumer aade by the elimination of the entrepreneur's monopoly profit has been a redistri bution of income from the entrepreneur to the consumer. Redistribution on a Honfaotoral ~ Basis The Chamberlin proposal is a rather novel scheme of income redistribution, one not heretofore considered in this study. It does not involve the redistribution of income between factors. Ho change in functional distribu tion, in the usual sense, is implied, neither is it based upon personal criteria. Rather, it is a manifestation of the idea of redistribution between classes— with class membership completely open and highly fluid. Here, the consumer qua consumer is the beneficiary of a proposed income redistribution. To single out the consumer as the object of income redistribution may seem to be quite arbitrary. Tet, if redistribution among the hired factors were to be adopted, the distributive scheme might be no less arbitrary. Ve have already noted Chamberlin's concern that uneven rates of factor reward would be established, with a consequent mlsallooation of resources as the favored factor(s) seeks employment in the redistributive firm. This situation 238 suggests the next problem of deciding which factors are to be the objects of the income redistribution. The almost unquestioned assumption of many reformers, businessmen, trade unionists, and economists alike Is that labor ought to be the focus of redistributive programs. A redistrib- uter should demand a sound, ethically acceptable reason of those who would assert their claim to a share of the monopoly profit. The existence of another (countervailing) body of monopoly power should not be allowed to determine the apportionment of the monopoly profit. Experience has shown it to be quite likely that those who are in a posi tion to enforce their Interests whether by economic, political, or physical power are those who are able to appropriate monopoly profits to themselves. History teaches that over time the locus of monopoly power may shift; in one era it may be with the owners of capital; in another period, it may rest with labor. Heedless to say, the existence of monopoly power has no necessary coinci dence with the merit of its possessor's claims to the enhancement of his welfare. The difficulty, then, of making an adjustment , of choosing the factor to be favored, of finding an acceptable ethical criterion upon which to justify the redistribution, perhaps supports Chamberlin's proposal. Choosing the con sumer as the object of redistributive favor has, at least, 239 the merit of randomness and Inclusiveness. Everyone is a consumer. The soundest reason for supporting Chamberlin* s position seems to be that the monopoly profit or the monop oly position of the firm grows out of the market relation ship— the relationship between buyer and seller, and it is between buyer and seller that the adjustment should be made. Monopoly profit is being exacted from the consumer; he has to pay a price augmented by the power of the seller to place a private tax on his buyers. Thus, it would seem that the consumer can readily adduce a presumption favor ing an income redistribution in his behalf which other claimants ought to be allowed to rebut If they can present a cogent demonstration of any injustice resulting from favoring the consumer. Assuming that the lowering of price is adopted to favor the consumer at the expense of the entrepreneur, the question remainss what ought to be the theoretical basis of such an economic manipulation? As a target, one possibility would be the adoption of a concept of "just” or "fair” price. One popular course has been to follow the competitive ideal as closely as is possible. In an imperfectly competitive situation, price is set equal to marginal cost. This situation is shown in Figure 9 in which price equals minimum average cost as well as marginal cost. $ Price LMC LAC P 0 MR Output FIGURE 9 MARGXHAL COST PRICDTG 2*fl It 1b doubtful that a discussion of this nature can be made meaningful. Setting price equal to marginal coat bears no necessaxy relationship to any idea of "just" price. It is probably necessary to assume that price can be equated to marginal social value and that marginal cost can 12 be equated to marginal social cost. Such may not be the case. When MSC * MSV, the alternatives foregone by society exactly equal society's judgment of the value of the social output. If we could assume that MC « MSC, and follow the P * MC rule, we could maximize the welfare of the commun ity. The possibility of using such a frame of reference is not altogether out of the question despite the numerous competitive imperfections in the market and the allegedly numerous rational and moral imperfections in man. Price does measure the sacrifice a consumer is willing to undergo and, collectively, those alternatives consumers are willing to forego to attain a desired consumption goal. Unfortun ately, asserting an equivalency between price and marginal social value makes it neoessaxy to assume the very things this dissertation is investigating, namely, the rational ity of consumers, the ethical basis of their valuations— in brief, the standards of a just income distribution. 12Marginal social value is the worth of one more unit of the output of a firm to the oonannlty. Marginal social cost is the oost to the community of receiving that additional unit of output. 2*f2 Marginal cost nay perform fairly well as an indica tor of marginal social coat, but the correlation is dis turbed by the inability to allocate all costs of production upon those who should properly bear them. This is painfully evident to many communities which suffer from the creation of various forms of man-made blight. Perhaps all that can be done is to attempt to lower or remove monopolistic barriers to entry so that the demand curves of imperfectly competitive firms become more nearly horizontal, with tangenoy between the average revenue curve and the average cost curve more nearly approaching the minimum point on the latter. We cannot assume, however, that an equilibrium in a more competitive situation will be more agreeable to the consumer. Costs may not stay con stant as the conditions of entry are modified; they may rise, and in the attempt of the entrepreneur to equate mar ginal cost and marginal revenue, price may rise to a level in excess of that which prevailed in a more monopolistic setting. This possibility is recognized by Joan Robinson in her suggestion that the removal of imperfections in the market may lower the price of the commodity and lower the marginal physical productivity of the factor because it will not be employed any longer in a sub-optimal firm. The factors may receive the value of their marginal products: 2»f3 • • • bat it does not follow that they will be better off in the new position than in the old* since the value of the marginal physioal predaot [itself] may hare diminished: the margined physi cal product may hare diminished.. and the price of the commodity most have f a l l e n .13 Let us return more specifically to Chamberlin's essentially simple suggestion that a prioe adjustment be made in favor of the consumer to eliminate the monopoly profit. We cannot, in this study, consider at length what might happen to the economy if such a rule were universally observed. Many economic theorists— Joseph Schumpeter is a notable example— hold that positions of monopoly power crumble in time and that one of the chief reasons that they do is the very existence of abnormal profits which serve to lure new competitors into an economically attractive field. Undoubtedly, the problem of income redistribution, in the usual sense, would pale into insignificance in Schumpeter's eyes; he would view the grand pattern of "creative destruc tion" as bringing to the masses far greater benefits in enormously larger quantities of goods and services, ever- IV improving in quality and ever-proliferating in diversity. ^Joan Robinson, The Economy■ o* - rfaot Com petition (London: Macmillan & Co., Ltd*, 1959), p. 2o5. tU Joseph A* g*iwi»p«-fc»T*T napi-fcaTfl— t yid Democracy (third edition: Few York: Harper A Brothers. 1958J,PP. 81-86. V. MONOPSON1STIC EXPLOITATION The Nature of Monopsony In the preceding discussion, we have consistently assumed that the fir* faces an infinitely elastic factor supply curve. In consequence, exploitation arises from the monopolistically competitive position of the firm, hut we saw that by the simple expedient of redefining exploitation to the end that a factor is not exploited if it receives its marginal revenue product, the Pigovian exploitation dilemma is mooted. In the case of a factor having a positively sloped supply curve, the exploitation of the factor, in the sense that it will not receive its marginal revenue product, is a distinct possibility. The addition of a positively sloped factor supply curve to our list of assumptions ren ders the factor subject to both monoponlstic and monopolis tic exploitation. Monopsony is a term applied by economists to the buyer*s side of the market. A buyer is said to be a monopsonist if he can only obtain an additional quantity of a good or service by offering to pay more for it. A firm is a monopsonist in the resource market if it has to pay a higher rate of factor reward to obtain an additional unit of a given factor. Many reasons are put forth to explain why an 2h5 employer faces a positively sloped factor supply curve* In the case of labor, the employer located in a labor market relatively saall compared to his labor requirements may find that any expansion in his employment will necessitate an increase in the standard wage rate for a given grade of labor. The existence of a positively sloped factor supply curve means that the marginal factor cost of hiring a fac tor of production will exceed the average supply cost at any given level of employment. Graphically, the marginal factor cost curve will lie above the factor supply curve at all levels of output above sero. Figure 10 depicts a firm which sells its product under monopolistic conditions, as shown by the divergence of the curves of the value of the marginal product of labor and its marginal revenue product. The firm also is a monoposon!stic employer of labor, as shown by the diver gence between the supply cost curve of labor and the mar ginal supply cost curve of the factor. The value of the marginal product curve is not necessary to the graphical analysis; it is simply added for completeness. The profit maximising employer strives to bring the rate of revenue and rate of return of a factor into equality* Once this is done, ceteris paribus, there is no way for the employer to improve his position with regard to the employment of 2*f6 $ Wage Bate MLC W" W* ML VHP MRP L L* 0 Labor Units PI (JURE 10 OVERCOMING MONOPSONISTIC EXPLOITATION the particular factor. The firm depicted in Figure 10 has brought the marginal revenue product of labor into equality with the marginal cost of its hire at point A. Thus the firm will find it most profitable to hire OL units of labor. We know from what has been said previously that when a monopolistic competitor is involved, it will not be profit able for a factor owner to be paid the value of the margi nal product of his factor. Here, with monopsony also operative, the factor owner will not be paid the factoral marginal revenue productj that is, the employer will not find it profitable to pay the factor owner the revenue which a marginal unit of his factor adds to the total receipts of the firm. There is, however, no reason for the employer to pay the factor owner the marginal revenue prod uct LA; to do so, would not be rational entrepreneurial behavior, for OL units of the factor are available at a wage rate of OW (equal to LB). Therefore, the factor owner will be denied the portion of the marginal revenue product of his factor equal to AB. The factor is then said to be monopaonistically exploited. Existence of a Possibly Mnral Question. There is an interesting— possibly moral— difference between monopolis tic and monopsonlstic exploitation. Under the former, the employer can do nothing, even if he wants to, toward giving the factors the value of their marginal products. Under 2 * f r 8 the monopsonistic situation, it is not a natter of the unavoidable consequences of a situation, but rather depends upon expediency* It would thus seen that it would be pos sible to impute some degree of moral culpability to the nonopsonistic situation. A dichotomy. Gordon Bloom, in denouncing exploita tion as a noun become a "noise," has divided the phenomenon into two nain categories: deliberate and nondeliberate 15 exploitation* We shall consider first those types of exploitation which Bloom terms nondeliberate, for they are essentially of the nature of the idealized conception of figure 10 and the accompanying discussion but are, at the same time, of the least consequence to the problem of distributive jus tice* Bloom has identified three types of nondeliberate exploitation. The first of these is the monopsonistic situation, used previously as our example, in which the employer faces a rising (or perfectly inelastic) factor supply curve* The cause of the upward sloping supply curve is the existence of relative scarcity in the resource market* The utter futility of trying to relate monopsonistic ^Bloom, loc. cit exploitation to any ethical or economic standard of welfare is seen in the creation of scarcity by the resource itself; the resource consciously can be the cause of its own exploitation, as when a labor union adopts, say, a restric tive apprenticeship program. The result Is that the employer must raise wages in order to employ more workers, but in facing the upward sloping labor supply curve, he will find it to his advantage to exploit labor in the sense of not paying the full marginal revenue product. Those who are hired under the exploitative conditions may be much better off than they were when the employer faced a per- fectly horizontal supply curve, and they received their marginal revenue product. Particularly are the employed workers likely to find their position improved, if through the practice of exclusive unionism, the supply curve of labor is made to move to the left. In such a case, monopsonistic exploitation would continue undiminished, but the wage rate and the employed workers' standard of living would rise. But, monopsonistic exploitation may be ended and the position of labor as a class improved by the practice of inclusive unionism, in which the union having organised a large proportion of the workers employed by a firm may bargain for a wage rate which would, in one stroke, wipe out monopsonistic exploitation, raise wages, and increase 2$0 the level of employment. The same effect can be obtained by a minimum wage law. In Figure 10, the monopsonistically exploitative wage rate Is OW at which OL units of labor are employed. Any increase in the wage rate above OW that could be obtained by the union would narrow the discrepancy between what the factor receives and its marginal revenue product. Furthermore, employment would tend to increase in excess of OL. If, somehow, the wage rate OW* is precisely attained, the monopsonistic exploitation of labor will come to an end; at wage rate OW* labor receives its marginal revenue product. Employment will have increased to its maximum OL* • The establishment of the wage rate OW' has in effect established an infinitely elastic factor supply curve W*E. In consequence, the marginal labor cost curve has now become the same curve. Thus the employer will hire OL' units of labor as he equates the marginal cost of labor to its marginal return. OL' is the maximum level of employ ment, for at any level above this, the wage rate OW* would exceed the marginal revenue productivity of the factor. The wage rate OW* is not, however, a maxi mum possible wage objective. Monopsonistic exploitation will not exist at any wage rate in excess of OW*. Above OW', employment cannot, however, be established at the maximum OL'. Never theless, at any wage rate between OW* and OW", employment 251 will be greater than OL. The wage rate OW is the highest possible wage rate consistent with no reduction in employ- ment less than the originally established level of OL. Any wage rate exceeding OW would cause labor to suffer some unemployment, although those remaining would receive a higher nonexploitatlve remuneration. Bloom's second example of nondeliberate exploitation is that which exists when an employer is dissuaded from making an adjustment to equate marginal factor cost and marginal revenue product because the cost of making the adjustment would negate the benefits to be derived there* 16 from. Here, however, exploitation can out both ways; the employer may be the exploltee as well as the employee. Factor costs may rise, but, for various reasons, the firm may not find it expedient to raise price. The entrepreneur will not receive his marginal revenue product. Similarly, the hired factors would be exploited if a fall occurred in factor costs and the entrepreneur were to leave price alone. Bloom's third case of nondeliberate exploitation is that arising when a firm faces a discontinuous demand curve for its product. This last case will be considered with the oases of the so-called "deliberate" exploitation, as l6Ibid.. p. 253 252 one of the two deliberately exploitative cases involves virtually the same analytical approach. Ho ethical aueation involved. The two cases of Bloom's nondeliberate exploitation seem to pose little of concern for a study in distributive ethics. The actual level of welfare of the factors has no necessary correla tion with whether they are exploited in the technical sense. Bloom's assertion is that, in fact, a negative correlation exists; exploitation is more frequently encountered in high wage Industries than in those paying low wages; the reason for the low wages is the low marginal productivity of the 17 poorly paid workers. Nondeliberate exploitation arises in the general state of the factor market, a fact which the employer takes as given. Therefore moral dereliction cannot be imputed to an employer for the conditions which make technical exploi tation possible. Moreover, the first case resulting from the positively sloped factor supply curve can be overcome by raising the rate of factor payment above that which would be set in the market in the absence of bargaining or a wage law. Concerted action ie necessary, how ever; those factor owners which cannot or will not act face the continuing prospect of monopsonistic exploitation. 17Ibid.. pp. 269-270. The second case appears to be primarily a random natter which, over a period of tine, nay prove to be largely self-canceling. 71. DELIBERATE EXPLOITATION The very tern "deliberate exploitation" suggests sons thing morally reprehensible. It conjures up a vision of the wicked employer sweating hours of physically exhaust ing toll out of defenseless women and children. At the least, it conveys the impression that the entrepreneur makes a conscious decision to cheat factor owners, that the evil is an act of volition, that here, at last, is exploi tation in the true and immoral sense. For these reasons, deliberate exploitation is popularly associated with "sweated labor" conditions. Bloom*s argument is that the picture of the ignorant but industrious immigrants in the sweatshops of nineteenth-century Manhattan is rarely coin cident with the economic concept of exploitation; indeed sweated labor may not be technically exploited at all. Low wages and exploitation, as we use the term here, may be noncolncident phenomena. One reason that workers in nineteenth-century Few Toxk sweatshops received appallingly 18 low wages was that their physical productivity was low. l8Ibid., p. 270 25*f The ragged regiments of Europe which swept over Ellis Island and into the "little old countries" of the big eastern cities were all too plentiful and too ill-equipped by reason of language, education, and prejudice to be worth much economically. Quite conceivably, they could have been earning their marginal revenue products, or the value of their marginal products and yet not have been earning a wage commensurate with minimum standards of human decency and dignity. Conversely, skilled workers of Anglo-Saxon extraction in the most "Yankee" communities might have been employed under monopsonlstic conditions, thereby being deprived of their full marginal revenue products, and yet receiving a wage permitting a good measure of comfort. Bloom*s Bntanglement with Semantics Much of the trouble, which Bloom exhaustively explores, is reducible, at base, to a problem of semantics. In the fact of morally and physically degrading wage rates, says Bloom, the economist is compelled to deny the exist ence of exploitation so long as the remuneration equals the 19 marginal revenue product of the factor. But, actually, the economist qua economist is com pelled only to state that the conditions for "exploita tion," ae it has been defined by Figou and amended by 19Ibid., p. 271. 255 others, and as accepted in the technical vocabulary of economics, are not met when the factor owner is paid the marginal revenue product of his factor. The economist qua ethic let, qua religionist, qua humanist, qua citizen is not foreclosed from denouncing a ruinously low factor reward as "exploitation," and if the economist is somehow so beclouded in his thinking that he confuses technical nomen clature with moral issues, the language or the economist should be overhauled. Bloom has suggested that exploitation be redefined as the payment to a factor of less than the marginal revenue product which the factor would earn under monopo- listlcally competitive conditions were the factor market 20 perfect. This suggestion seems to possess the merit that the economic concept of exploitation would then describe situations in which factors in certain areas were not being paid what they are worth— what they could earn in other areas— owing to factor immobility or ignorance. Here, the remedial suggestions of measures to increase mobility, and those in furtherance of information, training, retraining, and education would have real relevance. Major Cases of Deliberate Exploitation Bloom has placed all instances of deliberate 20Ibid., p. 2»f7. 256 21 exploitation under two aajor cases. The first case, that of monopsonlstic discrimination in the hiring of labor, is made up of two sub-cases. These sub-cases have been 22 described by Robinson, as previously noted. In the first sub-case, factors of the same effi ciency are rewarded differently. The most common example of this would be increases in pay or labor costs (longer vacations, retirement benefits, etc.) provided senior work ers. Another Instance of this type of exploitation would be found when separate agreements have been concluded with each factor owner. For, example, earlier in our discussion we noted that an employer facing a rising factor supply curve will have to pay a greater rate of factor reward in order to hire more of a given factor. The possibility of a severe deterioration in labor morale is usually cited as the reason why an employer is forced to raise the payment of all previously employed factors to the new rate. Another possibility is that it may be possible to hire new workers at ever-increasing rates and, at the same time, leave the remuneration of the previously hired factors untouched. The likelihood of this possibility being real ised depends upon the degree of Ignorance about factor 21Ibid.. pp. 268-269, 272-27*+. 22Robinson, on. cit.. pp. 300-30*+. 257 rewards which can be imposed upon the hired factors. The highest paid factor owner may receive the marginal revenue product of his factoral units, but all of the other factor owners will be exploited. The other sub-case identified by Robinson is the payment of the same rate to factors of varying efficiency. Here, the marginal revenue product of the least efficient factor is equated to the factor payment. The more effi cient the factor, the greater the exploitation. The second major case of deliberate exploitation 23 analysed by Bloom is somewhat of a curio sum. In this case, the major requisite is a kinked demand curve indicat ing a discontinuous marginal revenue curve and, therefore, a discontinuous marginal revenue product curve. In addi tion to the requirement of discontinuity, the employer must be faced by a factor supply curve which is inelastic over the relevant range, and he must be able to set the factor price. All three of these conditions must exist concur rently if the employer is to exploit his hired factors deliberately. These conditions minus the specification of a perfectly inelastic factor supply curve form the elements of the third case of Bloom's nondellberately exploitative examples, the discussion of which was deferred to this point. 2^Bloom, o p . cit.. p. 273 258 Reconsideration of the "nondeliberative" case. We shall examine the so-called "nondellberatlve" case first. In Figure 11, the marginal revenue product curve of labor is DD*, discontinuous through FG because of the kinked demand curve of the (oligopolistic) firm. The broken portions of the MRP curves, FC and HG indicate the MRP curves which would exist in the absence of oligopolistic interdependency. Curve DC could be followed out beyong point F if the firm knew it could cut price without provok ing retaliation on the part of its rivals. Similarly, curve DH would be applicable to price increases above point G if all rivals followed this firm in raising the price level. The impact of changing price levels of the product is transmitted to the demand curve for a factor (derived demand) through the marginal revenue curve. Assuming that the firm can hire all the labor it wants at wage OW, the supply curve of labor to the firm is the infinitely elastic curve WS. This curve strikes the MRP curve in the discontinuity, therefore, employment will be OB. However, the firm would be willing to increase wages by an amount equal to WW* without reducing employment. As this is not necessary, the wage remains OW and the total amount of nondeliberate exploitation of the factor, as Bloom defines ^MRPf - MPPf x MR Wag« Bate Labor Unit a PIGUBE 11 NOHLEELIBERATIVE EXPLOITATION 25 2^Thls graph la adaptad fro* Allan M. Cart tar, a s f i 5 a a i : l i s L r u y s i f f ? p ! ° s r o d ’ Illi'“ i,‘ 260 it, Is shown by ths shadsd area. Carttsr feels that Bloom's analysis is not entirely 26 T I ▼slid. He poses a situation in which ths firm oould assume that rivals would not follow a price cut, in which case MRP curve DC becomes relevant. At wage OW, employment would be OJ. There would be no exploitation as the factor owner would receive the marginal revenue product of the factor. It ie rather difficult to see how this damages Bloom's analysis in that Cartter has changed the assumption from Bloom's original kinked demand curve condition to a situation more usually defined as monopolistic competi- 27 tion. Cartter puts another case in which the firm assumes its rivals will follow its price action in which case curve HD' becomes the relevant marginal revenue product curve. At wage OW, employment would be OA, and again there would be no exploitation. Bather than damaging Bloom's analysis, Cartter really seems to bolster Bloom's distaste for the concept of exploitation by showing how any factor can be exploited depending, in part, on one's point of view. Cartter con siders a wage equal to OW, at which level the firm would ^Cartter, on. cit.« pp. 66-67. 2?It is assumed here that the kinked demsnd curve is used in conjunction with the market structure of oligopoly. 261 hire the same OB units of labor as at wage level OW. Thus, If the firm has to pay a wage equal to OW per unit when it would employ the same amount at OW*, the employer nay be said to be exploited, the exploitation being equal to 28 W"W. fixed technical requirements. fixed technical requirements such as occur especially in modern industry present similarly interesting cases of exploitation. In figure 12, under fixed technical requirements, the MRP curve rises fairly slowly, but once technical capacity is reached, it plummets downward. The employer, operating under the requirement, will hire Of units of the factor. Under the supply conditions shown, the factor will receive a rate of payment equal to OP. Ordinarily, when the MRP curve has a negative slope, exploitation of a unit of the factor would be said to be equal to IB. Here, however, the curve is of zero elasticity through PC. The firm can afford to pay any wage less than PZ, the point Z being fixed by the intersection of the average revenue product 29 curve with the marginal revenue product curve. The firm 26Ibid.. p. 67. ^It will be recalled from the discussion in the chapter on marginal productivity theory (ChapterHI) that payment to the factor in an amount greater than PZ would more than exhaust total product. 262 Factor Costs MFC P 0 Factor Units FIGURE 12 FIXED TECHNICAL REQUIREMENTS FOR A PRODUCTIVE FACTOR 263 could pay FZ without reducing employment and, of course, without shutting down. Under these conditions, AZ rather than AB appears to be the measure of exploitation* Suppose, however, the supply curve of the factor were to become per fectly elastic at FA* The question now may be asked, as Cartter has suggested, if any exploitation then exists.3* * Deliberate exploitation— the The last form of exploitation to be discussed is the case identified by Bloom as the third example of deliberate exploitation.3^ * Bloom specifies that all of the following conditions must be met concurrently for this form of deliberate explolta- 32 tion to exist* 1* The factor supply curve must be perfectly inelastic over the relevant range* 2. The employer must be in a position to fix the wage. 3* There must be a kink in the demand curve of the product at the prevailing price* The important condition, according to Bloom, is the third, for any increase in output could only be disposed of by the firm at a price so low that the marginal revenue 30cartter, on* cit.« p. 68* 31Bloom, o p * cit.* pp. 272-273* 32Ibid., p* 272. 26k therefrom would fail to compensate for marginal wage costs. In Figure 13, the factor supply curve Sp being per fectly inelastic in the relevant range coincides with the discontinuity, AB, in the marginal revenue product curve of the factor. With OF units of the factor available, the firm would be willing to pay a price as high as OF* for the factor, but in the absence of some form of compulsion such as a minimum wage law, collective bargaining, arbitra tion, etc., there is no reason why it should not pay OF. The employer would not cut back employment of the factor from OF if the wage were raised to OF* equivalent to the marginal revenue product of the factor which is FB at employment level OF. Thus, we can say that the factor is deliberately exploited in an amount equal to AB > FF* per unit. This analysis bears a strong resemblance to the case of a good in inelastic supply such as a painting. The demand price may greatly exceed the supply price, in which case the factor is said to enjoy an economic rent. Here, the factor suffers a negative rent in that it is willing to be employed at a price equal to OF, but the employer would be willing to continue the same employment level OF at OF*. VII. CONCLUSION Little Belevance to Distributive Justice Most of the work in the economic theorising on Factor Cost pf P MRP MRP Factor Units FIGURE 13 DELIBERATE EXPLOITATION 266 exploitation has little bearing on distributive justice. The old Pigovian definition of exploitation as the receipt by a factor of less than the value of its marginal product has had to be discarded, for under the very pervasive con ditions of imperfect competition, it has no meaning. Thus, abstract theorising has served to remove the original Pigovian concept from consideration as a type of distribu tive injustice • The work of Gordon Bloom in classifying exploitation as either deliberate or nondeliberate further helps to delimit those cases to which moral fault may be Imputed and those to which it would be difficult, if not implausible, to make such an imputation. It will be recalled that Bloom's three cases of non deliberate exploitation were those in which: (1) the firm faces an upward sloping factor supply curve; (2) the cost of making an adjustment to equate factor cost and the corresponding marginal revenue product is too great to justify the change; and (3) the factor supply curve (possi bly infinitely elastic) passes through the discontinuity in the marginal revenue product curve. In the first case, the firm is not consciously inter ested in exploiting a factor; it is only interested in maximising profit, and, perhaps unfortunately for the factor owner involved, it is profitable for the firm to 267 restrict employment and hire factors at rates less than marginal factor cost. To indict this situation as morally questionable, it would be necessary to indict concurrently the profit-seeking motive of business enterprise. Further more there is a constructive way out of the dileama; the factor price can be raised by bargaining or legislation, so that the exploitation may be eliminated and employment increased or at least no decreased, as the case may be. The second case is purely unintentional and quite unbiased in its impact. Either the factor or its employer may be randomly exploited, and their positions may change depending upon the vagaries of the product and factor mar kets. The third case is a rather complicated one analyti cally, but if it is taken as Bloom posits it, it seems much the same as the first case except here the distinguishing fact of the case is oligopolistic interdependency, the non- deliberate exploitation arising because the firm cannot legitimately expect to follow out a relatively elastic demand curve but rather must act on the premise that a price reduction will be matched or over-matched by its rivals. Again, there is no intention of deliberately expropriating anything which should rightfully go to the owner of a factor. The solution of this form of exploita tion by eliminating oligopolistic interdependency would be 268 quit* difficult and impracticable. Oligopolies are an important aspect of a highly developed economy* Their elimination may result in the loss of important oligopolis- tic attributes such as the economies of scale and the research and innovation carried on by the so-called "pro gressive" oligopolies* Elimination of uncertainty via collusion would substitute a definitely bad solution as an answer to a questionable problem. Elimination of the prob lem by regulation may be feasible or not depending on the industry in question, the attitude of society toward regu lation, and the ability and performance of the regulators. It is highly debatable if it would be worth the effort. Bloom's remaining two categories are described as "deliberate" exploitation, implying that such exploitation as is undertaken involves the conscious decision to deprive a factor of the full share of its marginal revenue product. Whether this is done deliberately or not, is not as impor tant for our purposes as is ascertaining whether these cases perpetrate injustices. Is "Exploitation" Is justly? Ths payment of an equal sum to factors of varying efficiency, or the paying of varying sums to factors of equal efficiency may work an Injustice or be undertaken to prevent one. Often this form of discrimination may come about at the behest of the factor owners themselves. The 269 opposition of many workers to piece rates, incentive rates, and time and notion study is well known. Teachers commonly oppose remuneration on the basis of merit, preferring instead to be paid uniformly within one grade, despite the vexy obvious fact that within the same salary step there are many teachers of widely varying degrees of effective ness. Payment on the basis of seniority can result in factors of the sane efficiency being paid differently. Again, this type of discrimination often arises, not at the instance of the employer, but at the request of the factor owners. If anyone must be cited for moral culpability as an exploiter, it would seemingly have to be the majority of workers who feel that they all benefit from courses of action designed to benefit senior workers at the expense of those in a junior status. The final case, that of perfectly inelastic factor supply and a discontinuous marginal revenue product curve, was termed a "curiosum." Actual concurrence of the three requisite elements in the real world seems highly unlikely. The case seems to have been included by Bloom for complete ness and for analytic perusal. We may wonder what factors would have a perfectly inelastic supply curve. Land comes to mind, of course. But here, the eomplaint against land owners has long been of the payment of an economic rent, unnecessary to secure the services of land. Exploitation in this situation could simply result in the transference of at least part of the rent from the landowner to the employer. Another example of a factor with a perfectly inelastic supply curve would be a person of remarkable or unique talents, perhaps managerial or artistic. In such a case, the firm might be willing, as is indicated in Figure 13, to pay an exceedingly high price before reducing its use of the particular factor to zero, and, hence, would deliberately exploit the factor if it could obtain its services for less than the marginal revenue product of the factor. However, in such a case, one of Bloom's three ele ments, that of the power of the employer to depress the wage rate is likely to be missing. An unusually remarkable factor is very likely to have strong enough bargaining power to eliminate or substantially reduce the exploitation. In this case, Bloom's second element, the necessity of power on the part of the employer to reduce the wage rate, would seem to be more decisive than the element he feels to be most important, namely the existence of a product demand curve kinked at the going price. These considerations, together with the others dis cussed in this chapter, persuasively argue that the concept of exploitation has little light to shed on ethical prob lems of income distribution. If, as Cartter infers, the 271 "pinnacle of meaninglessness”^ hae been reached In the economic analysis of exploitation, how much more likely it is that the whole concept is devoid of meaning in an ethi cal sense. An important lesson to be learned from working with the concepts of exploitation is that analytical tools are helpful, indeed, indispensable, in bringing disciplined thinking to bear upon previously formulated ethical pre cepts , but cannot be, in themselves, ths progenitors of ethical standards. ^Cartter, op. cit.. p. 69. CHAPTER VI THE DISTRIBUTIVE ETHICS OP FRANK H. KNIGHT I. ECONOMIST AND PHILOSOPHER Frank H. Knight enjoys a well-established competence in the two fields of economics and ethics. Over a long and productive life, this "militant expositor of neoclassicism" has repeatedly come to grips with the problem of distribu tive justice. His outstanding reputation plus the perti nency of this thinking merits a consideration of his work in this study. Although he is a leading exponent of the neoclassical school and a philosopher, his views on econom ics and ethics diverge so markedly from those of the other economists and philosophers discussed in this study that he is considered separately. Knight*s view of the economy and especially of income distribution might be regarded by some as a position of unrelieved pessimism. His view of economic study reveals his humility in the face of problems of normative economics but also perhaps confesses incompetence on behalf of all students of economics. This is no comfort for those who are Irked by economists, for Knight's regard for the 272 273 untutored In economics is something less than charitable. His sentiments are that the masses cannot possibly hope to understand, much less deal with the complexities of the economy and therefore should not meddle with it. Knight is no apologist for the existing social order; his record of faultfinding is equal to that of almost any major critic of the economic and social order. He parts company with the other critics, however, when he declines to offer a program to correct the multitudinous defects he finds in the econ omy. But this is not a strictly accurate or just appraisal of Knight; he does, at base, have a program; it is inaction Very briefly, Knight's philosophy is that the economy does not necessarily work satisfactorily either on the basis of efficiency or ethics but that attempts to improve it will likely be worse than nothing. As Joseph Dorfman, in his study of American economists, has said of Knight, "Things were difficult enough as they were, changes, in most cases, could only make matters worse A quick impression of Knight's attitude toward dis tributive justice can be gained from the very low relative ranking he gives to justice in a hierarchy of values. His ordering of values is as follows: (1) freedom, (2) order, (3) security, (if) efficiency, (5) progress, (6) justice, 1 Joseph Dorfman, The Eco^-fl^ Hind in American Civilization (Hew York: ~Wie Viking ^ress, 1959), V, p. If79- 27*f 2 and (7) culture. II. THE AGNOSTIC VIEWPOINT Knight's basic philosophy is one perhaps inade quately characterised as agnosticism; he combines a measure of antipathy toward recognized religious forms with a belief that moral forces rather than organization or legal forces determine the social order. The Judeo-Christian ethic has had a recognizable influence on his thinking. Traces of Stoic philosophy also are found in Knight's con viction that people must live with the possible. The old technique of minimizing misery by suppressing desire is indicated in this passages "People must be educated out of h unreasonable expectations from the economic order. ..." Pew writers, especially in recent times, have devoted themselves so consistently to the problem of distributive justice. The problem becomes increasingly acute in that Inequality has a tendency to cumulate in fulfillment of the prover that to him who has shall be given. Justice is, after all, not unimportant to Knight, for he notes that 2 Prank H. Knight, Intelligence and Democratic Action CCambridge s Harvard University Press, 1^665, pp. i^f-155. 3Ibid.. p. 117. ^Ibid.. pp. 10-11. 275 5 extreme Inequality negates his paramount value, freedom. III. CRITICISM WITHOUT PRESCRIPTION However he may deplore the ethical imperfection of the economic system, Knight refuses to prescribe• Social justice is a luxury, he feels, and too much effort spent in its pursuit will interfere with those natural forces which 6 mankind does not understand. There is a disturbing impli cation of occultism in this attitude— the idea that perhaps we ought not to try for understanding, that some forces are better left alone. Even more disturbing is the implied suggestion that these forces are somehow beneficent— at least more beneficent than they would be in altered form. Knight's hesitancy in tampering with the economic order is reminiscent of the attitudes of both John Bates Clark and Thomas Nixon Carver. Knight's fear of social experimenta tion is clear. He has stated that a society should not experiment on itself; it is too much like separating toad- 7 stools from mushrooms by eating them. But eating is not the only method of experimentation. Knight's simile, ^Ibid.. p. 119. ^Frank H. Knight, The Economic Qrd«-r and Religion (New Torks Harper A Brothers, 19l +!>)» p. 125. 7Ibid.. p. 126. 276 however, is more valid than one might think; he is, in the main, arguing against the view that science can specify moral ends. Moreover, he opposes those who believe that the methodology of the physical sciences can be boldly Q incorporated into the methodology of the social sciences. Knight thinks that the first step toward the achieve ment of justice is a societal consensus as to what justice 9 is. The most important aspect of justice to him is social action— social action in the area of the market economy where the forces of government and enterprise converge, and the main problem of justice in this area is distributive or economic justice.1^ To Knight, the most difficult aspect of social jus tice is one area neglected by many students of the problem, namely the heritage the existing generation is preparing, albeit inadvertently, to hand down to unborn generations.11 Knight's attitude may be summarised briefly: Social justice is needed and desirable, but the pursuit of social justice is more likely than not to bring unhappy results. Although Knight might temper his criticism of efforts by aibid. ^Knight, Twt^i^Hgewce and Democratic Action, p. 155. 1QIbld.. p. 156. 11lbid.. p. 137. 277 economists to improve the economic status goo, his sarcasm for social reformers is unmitigated. With their sentimen tal idealism and their wholly undisciplined thinking they are, he charges, "worse than criminals," because their Idealism "• • .is usually combined with excessive self- confidence, a righteous pose and ambition for place and 12 power." A typical complaint from Knight against social reformers generally is that they see social justice as a matter of income redistribution, but cannot comprehend the problems of accumulation and production In an observation on the basis of charitable redistribution, Knight raises the question as to how much help the objects of redistribution ought to receive. He doubts that there should be a distribution to the lnten- iL. tlonally incompetent. There is a considerable question, however, as to how society ought to grade competence. Knight accedes to the apparently prevailing social consen sus that the totally incompetent should be helped, that they have a "right" to life which he characterises as a 15 "tolerable human existence." 1 ^Knight, The Economic Order a«a p. 125. 13lbid.. p. 20*f. llf Khight, Intelligence a**a ~n»«^Gratic Action, p. 160. 15 Prank H. Khight, The Ethics of Competition and Other Essars (Hew forks Harper « Brothers, 1935), p. 57. 278 There Is some danger in ascribing connotations of merit to competence. An individual might be deemed meri torious (competent) to the degree that he can sustain his life above a subsistence minimum. However, incompetence, as gauged by this test, may come from being too good for the world as well as from being blameworthy as the regret table cases of W. A. Mozart, Franz Schubert, Marie Curie, and others attest. IV. KNIGHT ON EQUALITY Knight regards gross inequality as undesirable. Among his suggestions for an amelioration of "gross inequality," is a guarded recommendation for a compulsory redistribution of income. Income should be redistributed, he says, only in the face of serious evil and when "it can be done with a net balance of good over harm in the result . The source of much of the harm Knight has in mind is a possible growth in the centralization of author ity, especially in the state. Inequality per se has no moral implication. The moral question arises in judging whether the particular inequality under consideration is justified. Knight iden tifies this aspect of the question as the ethical problem ^^Knight,' Tutsi ^igence T>»»oeratio Action, p. 160. 279 of Inequality. To demarcate just from unjust inequality, a situation must be analysed into three or four main fac tors: inheritance (both natural and social), possession at any one moment of time of the capacity to produce a 17 useful [desired?] good or service, and luck. A discussion of equality may become imprecise unless the magnitudes proposed for comparison are clearly speci fied. "Equality and inequality," Dahl and Lindblom aver, 18 "are only crude terms." There are so many possibilities for equalizing the numerous magnitudes which flow to the person as "income," that to compare, say, one family with another, and announce that there should be a redistribution such as to effect a measure of greater equality between 19 them is, upon reflection, a virtually empty statement. 1 ^Knight, The Economic ynd Religion, p. 11V. 18 Robert A. Dahl and Charles E. Lindblom, Politics. EermnaHr>«^ antj Welfare (New York: Harper 4 Brothers, 1953), p. 1*2. ■^Por example, Dahl and Lindblom have identified a number of fairly distinct income flows: (1) money income; (2) real income; (3) income excluding leisure; (V) income ineluding leisure; (5) income before taxes, subsidies and free government services; (6) income after taxes, subsi dies, free government services, and interpersonal gifts or charity; (7) particular goods and services, the consumption of which is Important to the community; (8; current income; (9) income over a long period of time such as the family cycle; (10) income from wages and salaries; (11) income from interest and dividends; (12) inherited income; (13)nor inherited Income; (l*f) accumulated wealth; (15) income at the start of life; (16) income as a final product in adult life. See Dahl and Lindblom, on. cit.« pp. I*f2-l*f3, 280 One type of equalitarianism acceptable to ordinarily divergent points of view seems to be the equality of oppor tunity— the open opportunity of the individual to develop himself to the full limit of his natural capabilities. Even here, Knight has repeatedly stressed his reservations. Individuals are bom into the world with two types of inheritances: one comes from genetic sources; the other is a collection of wealth. Either inheritance, feels Knight, is a source of injustice. The situation epitomizes the problem of inequality; it is cumulative. Those who have more are in a position to get still more, and so on. Equal opportunity to employ unequal resources may be an empty 20 sort of equality as Knight repeatedly points out. Knight's hierarchy of values indicates his persist ent concern that actions taken in furtherance of equality must not Intrude upon his premier virtue of freedom. Neither should productive capacity be impaired. Unfortun ately , both liberty and equality may conflict with effi- 21 clency • Knight, throughout his many works, has repeatedly expressed his disgust with man, who though distinguished 20Knight, The Kconn«ic Order and Beligion. pp. 2^6- 2^7; Intelligence and TW>«^r>ratio Action, on. 86. loO. ^Knight, The Economic Orden yid Beligion. pp. 2^6- 2*i7; intelligence an^ neennratic Action, p. 167; The Ethics 281 from the lower animals by his capacity to reason, makes poor use of his rationality, preferring instead opinion and fancy. Fascination for the unreal, inspired largely by political rhetoric, is responsible, in large part, for the clamor about the inequality that the people are led to 22 believe is interfering with their personal happiness. Moreover, people are induced by politicians and reformers to believe that the way out of the plight of inequality is for men of wealth to use their powers for the common good. When such help is not forthcoming, Knight asserts that the way is open for reformist leaders to proclaim that the rich 23 and powerful do not help because they are unrighteous. Knight does not deny that many reforms are needed and jus* tifled, but he cautionss • . . it is quite as certain that a large part of the "reforms" opposed by business men are really vicious, while most of them are debatable; and even the reformers* objectives can be condesied in terms of a moral and social philosophy as plausible as that by which they are defended.2^ V. OH DISTRIBUTION IN THE FREE MARKET Despite the possibility of Inferring the opposite from his writings, Knight has continually asserted that the 22Knight, The Ethics of Competition, p. 60. 2^Khight, The Economic Order and Religion, pp. 236- 237. ^Ibid., p. 237. 282 free Market and competition do not bring about a just dis tribution of income. Income distribution as effected through the free market fails to be just in that the market reflects all of the frailties and vanities of human evalua tion.^ Knight*s reasoning as to why the competitive system is not necessarily productive of justice serves well to discredit the mechanistic moralizing of the marginal pro ductivity ethicists. Although it is true, says Knight, that those who are the most productive get the most, almost the entire sum of their productive powers derives from the workings of social, processes. These processes, in turn, include noncompetitive behavior, and an element character istic of Knight's thinking, luck.^ A case can be made for the idea of productivity as the basis of distribution, but it is not an ethical one. . . . every productive resource [Is placed] in that position in the productive system where it can make the greatest possible addition to the total social dividend as measured in price terms, and tends to reward every participant in production by giving it the Increase in the social dividend which its co-operation makes possible. In the writer's opinion such a proposition is entirely sound; but it is not a statement of a sound ethical social ideal, the specification for a utopia.2' 2%night, The Economic Order and Beligion. pp. 120- 121; Intelligence and Peen^-ratic Action, p. 162; The Ethics of Competition, pp. Hg. PK $7. ^Knight, Tn^i^igance ratio Action, p. 162. 2?Knight, The Ethics of Competition, p. MJ. 283 The ethical problem is centered in productivity, but it is not solved by it* It is true that the concept of productivity contains within itself much of the crux of the ethical question, but it cannot, as Knight repeatedly emphasises, be itself taken as an ethical datum* Ethical Judgment must fall upon productivity* Justice, Carver, to the contrary, cannot proceed from the economists' concept of factoral productivity. Apologists for both social reform and competition are condemned by Slight* Repudiating the complaint of those who assert that competition would be fine if it worked, he declares that there is a great measure of com- 28 petition actively working in our economy. At the same time, he is cognisant of the monopolistic pattern that is a severe problem in the present economy, but his criticism of monopoloid elements is softened by his belief that monopoly power is an essential part of a progressive and growing economy, and he Joins the late Joseph Schumpeter in the view that over the long run, the centers of monopoly power 29 are continuously breaking down* Furthermore, argues Knight, much of the monopoly pattern impairing the idealised 2®Knight, The Economic Order and Religion* p. 106. ^Joseph A* Schumpeter, Capitalism* Sqc**n «na Democracy (third edition: Hew Tort* flamer * Brothers* 19577;"pp. 81-86. functioning of the economic system springe, not from busi ness, but from the government, and some of the most offen sive of these monopolies are nonbusiness by nature* The social costs of these nonbusiness monopolies are far greater, he believes, than those commonly charged to the 30 more conventional business monopolies* Knight * s well-known conception of profit and Its causes must be understood as forming a basic part of his approach to distributive justice* He argues that people must see that business is not charity* The proper guide for business conduct is broadly based in the "liberal ideal" which provides: • * * the individual should do things for himself, stand on his own two feet and not have either the fruits of action or needful resources handed to him by anyone else or by society.31 It would be wrong, however, to remove these words from the context in which Knight sets them: namely, that liberal thought has been naive in its typical assumption that pro ductive resources appertain exclusively to the individual by nature and may be employed at the individual * s discre- 32 tion for his own pleasure* To paraphrase Knight, a great difficulty attached 30gnight, intelligence and Democratic Action. PP. 93, 99. 3lKhight, The Economic Order and Beligion. pp. 2*t6 285 to this view is that of getting individuals to stand on their own two feet* Treatment of this issue was one of the strengths of Carver's work and those who followed in his intellectual footsteps* They pointed out that much of the dissatisfaction with the existing scheae of income dis tribution, however just, is that individuals are unable to stand on their own two feet. One of Carver's suggestions to mitigate the harshness of an undesired income distribu tion was to educate, train, and retrain when necessary. Although Knight, curiously perhaps, seems little concerned with measures to increase labor productivity, such measures would not appear to be antithetical to his views • According to Knight, moral business conduct, in the light of the so-called "liberal ethic" consists in adhering to the rules and striving to improve them. That such a pronouncement seems applicable to a game reflects Knight's way of regarding much of business activity as a game— a game which grows out of man's liking for sport and pro clivity for risk taking.^ VI. OH THE JUSTICE OF PROFIT Knight objects to the economic system of free enter prise being called a "profit system"; to his mind, it is a 33Khight, The Bean Ord«T» an d Religion * pp. 107 • . 286 "profit and loss" or perhaps, better, a "profit seeking” 31+ system. Indeed, the aspect of loss bulks larger than profit. It has long been his contention, although he has admitted that he cannot prove it, that business, on the vhole, incurs negative profits: . . . people go on ranting about the wickedness of profit— while trying to grab it, and while the evidence indicates that on the whole it is a minus quantity. The Justification for profit, avers Knight, is the assumption of entrepreneurial risk. The risk of which he speaks is not the same as that involved in gambling; it is uncertainty.3^ The existence of the uncertainty inherent in the conduct of business enterprise may serve to justify the entrepreneur*s share, the size of which is so frequently attacked. The attackers, Knight implies, do not understand uncertainty; they either cannot or will not see the all- pervasive powerful intimidation of the uncertainty that justifies the share of income called profit. This though suggests, although Knight himself does not, that a possible course of action to reduce unwanted income inequality when 3lfKhight, Tn-tAli tgence and Democratic Action, p. 86. 35Ibid. 36prank (Boston: Houghton Mifflin Company, 1921), pp. 3-*f8. 287 entrepreneurial activity is involved is to take action to reduce uncertainty or to increase the number of those willing to take upon themselves the burden of uncertain returns. This is approximately the same approach urged years ago by T. N. Carver, later by Raymond T. Rye, and 37 recently by Louis V. Kelso and Mortimer J. Adler. Not only does Knight repudiate those who deny the justice of or necessity for profit, he is annoyed by those who pose the distributive justice problem in terms of 38 wages only.'3 The preoccupation with the share accorded to labor is quite noticeable in the literature of distribu tive justice. Unquestionably, the personal Ideology of those who are inclined to be concerned with the question of justice in distribution is often sympathetic with the lot, real or Imagined, of the working man. But probably there is a sounder reason then this, namely that the poor, whether their lot is morally deserved or not, typically have been members of the industrial working class. Knight dislikes the propensity of many writers to distinguish labor from the other factors of production. The pro duct i've capacity of labor, he notes, derives from the same three sources of productivity attributable to the other factors: ^All of these writers are considered in Chapter IH of this dissertation. ^^Knight, Intelligence and Democratic Action. p. 100. 288 39 inheritance, luck, and effort of acquisition. Knight declares that wages are based on considera tions of expediency. Equating pay to performance, he lfO notes, has no ethical content. The ethic of the labor movement is purely exploitative, charges Knight* The work ing class movement is a history of demanding more reward for less effort. The current claim of labor for more pay on the basis of increased productivity per man hour is due almost entirely to technology and managerial talent. He adds that no matter what scale of living might be thought proper to accord to labor, labor has no moral claim to an arbitrarily determined standard of living at the expense 1*1 of an employer. We may then conclude that Knight regards the efforts of pressure groups to obtain distributive jus tice (in their own eyes) as repugnant. VII. KNIGHT'S DOCTRINE OP DISTRIBUTIVE JUSTICE A casual reading of Knight is likely to lead one to decide that Knight's contribution to the field of economic ethics is essentially negative— that he has done an admir able job of cataloguing all the things distributive justice The Ethics of Competition, p. 56. lf0Knight, »nA Pamncratic Action, p. 162. 11-1 Ibid.. p. 170. 289 is not. Certainly, he has completely exploded the ethical structure of the marginal productivity ethic lets by force fully disdaining the regrettable tendency of mankind to confuse causality and moral desert in a miasma of sentimen tality. Moreover, he has definitely asserted that there is no definite solution to the problem of distributive justice because several of the conceptions of economic morality are, at least partially, mutually exclusive and inharmoni- b2 ous. Yet, a negative approach to a problem is a service; it narrows the search. But Knight's approach is not wholly negative. He has done some notable work in a most thorough exposition of what he believes to be the several criteria of distributive justice. If there is any principle of justice in distribution which would appear to be pre eminent in his thinking, it would be distribution on the basis of need. In his repudiation of any ethical content of pay based on performance, he suggests— and the author of this dissertation thinks that it must be regarded as a suggestion only— that an ethically justifiable wage ". • • would call ... for the basis of need, or equality modi- fled by need." 42Ibid.. p. 137. 43Ibid., p. 162. 290 The Pour Ideals of Distributive Justice We shall now turn to Knight’s four ideals of dis tributive Justice* contribution, need, equality, and reward in accord with the dignity of one's calling. Contribution. Contribution consists of the familiar principle that a person should be rewarded by the economy commensurate with his contribution to it. In commenting upon this principle, Knight makes a most interesting and important distinction. The free economy, he declares, tends to give every participant the measure of his contrl- Mt bution as a reward. Weisskopf, as we have seen before, does not believe this to be true, holding that the "social element" in marginal productivity theory, does not comport with a true sense of individuality* The individual supposedly receives the equivalent of his net product as reward; but it is not the value of his own productive contribution which determines his compensation; it is determined by the net product of the marginal laborer or factor unit. This reward is commensurate with productive contribu tion, but productive contribution is measured in soc ial terms; one's product as a member of the groum^is interchangeable with one of the marginal worker. 7 The social element • • disturbs the correspondence ^Ibid., pp. 137-138. ^^Walter A. Weisakopf, The Psychology of Economics (Chicago: The University of Chicago Press, 1955), p. 232. 291 b6 between reward and individual effort,” say a Weisakopf. Thus, the Weisakopf view is that the reward meted out to the individual by the economy cannot be said to reflect the value of an individual's productive contribution, because the value of the Marginal product is not the value of one's own product. Hence, the question of determining distribu tive justice to the individual on the basis of productivity is largely obviated. Knight, although maintaining that the free economy does tend to give the individual participant a share of the income based on his contribution, stresses that even if this is so, there is little ethical significance in this situation. The reward of factor owners may depend upon their contribution, but their power to contribute arises from processes, most of which are not subject to the individual's will or effort.1 *^ Taking different paths, Knight and Weisakopf have come to the same conclusions as to the justice of the mar ket situation, namely that little, if any, ethical signifi cance can be attributed to a reward (purportedly) based on the productive contribution of the individual. At times, Knight indicates that he does not hold to ^Ibid., pp. 232-233. ^Knight, jgence an a n»iir>cratic Action, PP. 137-1385 The Economic Order and Religion, p. 113. 292 a complete dichotomy between reward and contribution. For example, he has said: Distribution on the basis of productive contribu tion has moral claims too. and in addition is the mechanism by which production is organised and motivated, and without effective production there is nothing to distribute/*® A self-contained group is rewarded according to its produc tivity, says Knight, apparently indicating the futility of applying any other distributive norm here. It is within the group, he notes, that it becomes possible to apply l+o other bases of reward. ' Heed. Knight's second criterion of distributive justice is need. Although it may seem strange to some to behold one of the leading proponents of economic liberalism recognizing a popular socialist tenet, Knight cautions that there is little likelihood of measuring needs or of decid- 50 ing how they ought to be met. Boual1ty. The third ideal of distributive justice, according to Knight, is equality.^ He Has little to say about or in behalf of equalitarianism. ^•^Knight, Intelligence and Democratic Action, p. 138, 49Ibid. 5°lbid.. p. 138. ^ Ibid.. pp. 138-139- TMpni-ty w«d Knight's last principle of distributive justice is that the reward should be oomsen- 52 surate with the dignity of one's calling. The idea is that individuals who have been called to those occupations to which society has ascribed varying degrees of honor and dignity should live better than those of lesser stature. This principle certainly stands in danger of being con* demned as undemocratic. It resembles to a great degree the Thomistlc doctrine of just price. To the extent that just price has ethical validity, it ought to be possible to find some justification for the fourth norm. However, as Knight himself remarks, the same general line of reasoning can be employed to argue the opposite 53 conclusion. Using the old proverb that virtue is its own reward, one could argue that those forced to perform tasks of a menial or disagreeable nature should be granted a larger share of society's income than those who already have been abundantly rewarded by income of a psychic nature, Summary of Knight's Position The delineation of four possible criteria of distri butive justice gives little aid in arriving at an ultimate 52Ibid., p. 139 53Ibid. solution. The problem resolves itself into the economic problem all over again. Society is faced with the problem of how much of each of these criteria is to be employed, to say nothing of the more basic economizing problem— how far is society to go in the quest for justice? Knight's direction leads to income sharing based on a large measure of productivity (subject to numerous caveats and qualifications). Before closing this discus sion, then, it would be well to examine the reservations that he has about using productivity as a basis for reward. First of all, Knight asserts that when a laborer has received all that is due him from his employer, only a bare start has been made on the problem of distributive jus- 5*t tics. This is reminiscent of the Carverian dilemma in which one can receive all that one is worth and be unable to live on it, although Carver said this would be just. Carver's solution was to increase the productivity of the chronically poor, a technique little referred to by Knight. Carver and Knight would agree that, whatever the solution, the unfortunate laborer should not find his subsistence through the expropriation of his employer. Neither econo mist would concede a moral basis for this method. Carver would presumably split with Knight over the latter's ^Ibld.. p. 26. 295 suggestion that the laborer of sub-viable productivity be 55 placed on a subsidy. Carver would regard this as expro priation in another guise. Knight's justification for this procedure apparently rests on the belief that expropriators exist somewhere in the economy and that those who are possessed of a comfortable measure of the world's goods should be called upon to help those less fortunately endowed• Carver and Knight would appear to agree on the matter of population. Carver recommended reducing population to diminish the supply of laborers; presumably Knight would concur, but he would hold down the population to decrease the pressure on nonhuman resources as well. A neo- Mai thusian, he maintains that • • human betterment is far more a problem of science than it is one of good will."56 The valuation problem remains the major flaw in the productivity argument. No ethical content is found in mar ket demand or in the ability to fill that demand, Knight 57 says. Similarly, there is no merit in scarcity. Vital and 55Ibid., p. 8. ^Knight, The EoonnMirt Order and Religion, p. 252. ^^Knight, The Ethics of Competition, pp. 56-57. 296 trivial services, notes Knight, may be worthless and dear, CO respectively, according to the state of supply. Perhaps more controversial, is Knight's attitude toward inheritance. The term "inheritance," as used by Knight, includes the natural endowment with which a person comes into the world. He doubts the moral claim of anyone to the fruits of his own toil in which the claimant has 59 used either inherited personal property or ability. Inheritance is a leading source of injustice, he says, ". • . which by the standards of individual ethics is palpably unfair."^0 Allan G. B. Pisher on "direct" and "radical" methods of income redistribution. Pisher joins Knight's charge against inheritance: "Ejy means of inheritance, old inequal ities are perpetuated and new inequalities injected into the situation."^ Pisher seemingly limits his conception of inheri tance to the widely accepted meaning, a body of (or legal 58Ibid.. p. 57. ^Knight, The Economic Order and Religion, p. 11*+. 8^Knight, Intelligence and Democratic Action, p. 120. ^Allan G. B. Pisher, "Alternative Techniques for Promoting Equality in a Capitalist Society," Economic Issues Policies, eds. Arthur L. Grey and John E.“ illiott (Boston* Houghton Mifflin Company, 1961), p. 286. 297 claims to) material wealth, for he remarks that the inequality arising from inheritance could he modified by relying on the "direct method" of taxation. However, taxa tion as a remedial measure little concerns Fisher. Its value is quite limited in that it must be repeated because it does not get at the roots of inequality, and it may well limit the productive capacity of the economy. Fisher favors education as the most satisfactory way of achieving greater equality in the distribution of income in a capitalist society. This is a "radical” method, for it strikes at the roots of that part of the problem of inequality which appears to be the most readily remediable. Education is the path by which the members of lower-income group8 can make their way into higher-paying occupations. The evidence of countries having extensive educational opportunities suggests to Fisher that education is a power ful technique for promoting income equality within the 62 capitalist system. We should note, however, that the most decisive effect of education in removing inequities in income distribution is upon the educable. Knight on "unfair” inequality. Intelligence is not subject to interpersonal transfer. Hevertheless, Knight sees inborn talent as a source of inequality as unfair as 62Ibid 298 the receipt of ordinary economic wealth under the pro visions of a will. Knight appears to be inconsistent in that he has elsewhere distinguished those inequalities over which peo ple have no control from those which may be modified by action. If natural phenomena contain retributive consequences for human beings, the matter cannot be handled within the framework of science; it is a simple matter of faith, and considered from the stand point of religion, attempts to judge the morality of Providence contribute nothing to understanding. Thus, whatever view is taken, there is little likelihood of discussing, with fruitful results, the inequity of natural human endowments. Remain ing undisposed, of course, is the ethical question of the obligation of those who have been, for whatever reason, endowed with talents superior to those who come into this life less we11-equipped. Assuming the talented to have an obligation to the bulk of the population, the problem arises of how to elicit that talent in the service of humanity. The imposition of equality of income upon the members of a community may leave the group bereft of the services of the gifted who, without the prospect of a differentiated reward, might not be led to employ their endowments in the best interests of the community. 299 Here as elsewhere, Knight adheres to his safe but irritating practice of never making a statement on an issue without somewhere qualifying it. The elimination of inher itance, he asserts, must not be pushed to the point where society is worse off, for he claims that inheritance has been the basis for the highest forms of civilization.^ After this examination, one may well wonder if any thing coherent can be made of Knight's attitude toward inheritance. Possibly, his position on inheritance is this: whether income is justly earned or not may hinge upon whether the capacity to furnish a desired good or service— that good or service being considered morally acceptable in the light of Judeo-Christian thought— is the result of a conscientious personal effort on the part of the individual to develop a talent Inherent in himself. VIII. CONCLUSION In contradistinction to the views of Carver and Clark, Knight forcefully contends that a just distribution cannot be determined scientifically. In this position, he probably would be joined by the great majority of econo mists and scientists, both natural and social, who have troubled to be concerned by ethics. In the words of the ^Knight, The Economic Order and Beligion. p. 12*fr. 300 contemporary Dutch economist Fritz Zeuthen: I think it is impossible on a purely scientific basis to determine what is the best distribution of income, or wealth, or to find out how to maximize welfare.®^ This proposition may seem self-evident to many, yet in an age in which science enjoys unprecedented prestige, one finds many educated persons ready to adopt the faith that the framing and testing of empirical hypotheses can some how provide rules of moral conduct Such a faith is likely eventually to confront problems that it cannot solve, but this does not mean that a passive role is thereby rele gated to science in the area of ethical discourse. Again, to quote from Zeuthens . . . it may be possible in a piecemeal way to assist anyone who, in accordance with his moral viewpoint or interest wants to find an answer in harmony with logical thinking and the most relia ble and relevant answer of this kind may be called applied science or a more modern applica tion of science in combination with common sense and personal attitudes which are outside scien tific discussion. The scientist— the economist— is not thereby pre cluded or excused from making ethical judgments. The ^Fritz Zeuthen, t t Science and Welfare in Economic Policy,** Quarterly Journal of Ep>-nnnwir*«T LXXIII (November, 1959), 5161 65por a detailed discussion, see George Andrew Lundberg, Can Science Save Us? (New York: Longmans, Green and Company, 19^7). ^Zeuthen, loo, cit. 301 obvious human limitations which severely restrict the num ber of persons, such as Prank; H. Knight, who can master two disciplines, should not serve to frighten scholars away from problems of morality. Disciplined thinking is acutely needed in matters of ethical concern to avoid the rantings 67 of the sentimental reformers so detested by Knight. More positively, disciplined economic analysis can contribute not only to better founded and more clearly ordered ethical pronouncements but to the better implemen tation of justice and related values as the British econo mist E. A. G. Robinson has suggested in his foreword to a work devoted to the relationship of analysis and prescrip- 68 tion. The contribution of Frank H. Knight to the litera ture of distributive justice has been to show clearly that there is no "royal road" to justice in the distribution of income and that as difficult and as rigorous as the accom panying economic analysis may be, the most sophisticated and refined techniques cannot be substituted for a body of ethics. 67 Knight, The Econn»lo QrHar and Religion, p. 125. A. Johr and H. W. Singer, The Hole o* the EoonoBiat as Official Advisor, trans. Jane Aegras an<f Stephen frowe in tLondont George Allen A Unwin, Ltd., 1955^ p. v. CHAPTER VII PIGOVIAN WELFARE ECONOMICS AND DISTRIBUTIVE JUSTICE I. THE STUDY OF WELFARE We now turn to a branch o f economic study which does not eschew policy recommendations but which studies ques tions of what "ought” to be In the hope of making some type of prescriptive statement of normative content. The object of theoretical welfare economics Is* says Mishan: ”. . . to formulate propositions by which we may rank on the scale of better or worse, alternative economic situations open to society."^- We shall not, in this dissertation, consider the so-called "old" welfare economics so intimately identified with John A. Hobson. Rather, in this chapter, we shall be concerned with the welfare economics developed within the intellectual spirit of neoclassicism by Arthur Cecil Pigou, and in the next chapter we shall consider the "new" or "Paretian" welfare economics and its relationship to dis tributive justice. ^E. J. Mishan, "A Survey of Welfare Economics, 1939” 1959»" The Economic Journal. LXX (June, I960), 199* 302 II. THE BENTHAMITE BACKGROUND 303 The Benthamite ancestzy of welfare economics is quite apparent. Jeremy Bentham, the greatest figure of that branch of ethical thought which has become known as hedonistic utilitarianism, proposed a "felicific calculus" by which the utilitarian ethic of the greatest good for the greatest number could be measured. The fundamental unit in Bentham*s calculus is utility --the property of an object to confer pleasure or to pre- 2 vent pain to its possessor. Bentham thought that the more units of utility an individual amasses, the greater would be his pleasure or happiness. Similarly, a community would be the happiest if affairs could be so ordered that the utility of the community would be maximized.^ Bentham thought that it would be possible to measure utility, although acceptance or denial of his belief does not affect the general utilitarian premise. It is not surprising, indeed, it is most logical that Bentham's thought should have come to exercise an extremely pervasive influence in the body of neoclassical O Jeremy Bentham, "An Introduction to the Principles of Morals and Legl slat ion," Readings in the History of Bconoml» TThrmfrhtT ed. S. Howard Patterson (New Yorks McGraw-Hill Book Company, Inc., 1932), p. 179. 3Ibid. 30^ economic doctrine, for Bentham *s expositors and refiners were men who were closely identified with both economics and ethics and who were, at the same time, men of giant intellectual stature. Among the greatest were J. S. Mill, Henry Sidgwick, and Alfred Marshall. Mill advanced the principle of the calculus of pleasure in his Utilitarianism published in 1861, and Sidgwick did the same in The Methods of Ethics published in 187*+. Alfred Marshall was strongly influenced by Sidgwick as he himself indicated in his reference to Sidgwick as his "spiritual mother and father." Marshall'8 social impulses, so well demonstrated in the course of his life, were greatly to soften the strict application of the hedonistic idea that man should seek his own pleasure. The importance of the utilitarian ethic in the his tory of welfare economics is that in the pleasure-pain cal culus, the utilitarians counted the pleasure of one man as equal in worth to the pleasure of any other human being. This principle, so strong in the nineteenth century, was virtually annihilated in the twentieth century under the force of the great strides made in the science of psychol ogy as well as by developments within philosophy itself. ^Alec L. Macfie, Economic Efficiency and Social Welfare (London: Oxford Uhiversity Press, 19^3)9 p. 8, quoiing Alfred Marshall. III. ARTHUR CECIL PIGOU (1877-1959) 305 Respite the great contributions to neoclassical economics made by Alfred Marshall, his occasional ethical observations cannot be thought to be sufficient, or, more particularly, sufficiently well-ordered, to form the basis of a neoclassical welfare economics. Beyond question, Arthur Cecil Pigou, Marshall's contemporary and successor at Cambridge, is the most imposing figure in the neoclassi cal welfare economics. Pigou*s Promethean and monumental contribution to this area of normative economics is his Economics of Welfare first published in 1920 with three subsequent editions.^ This work has been subjected to an * making range of vicissitudes. Until the mid or late thirties, it enjoyed a fairly large measure of acceptance. Following the appearance of the "new" welfare economics, it suffered severely at the hands of many vociferous critics, but presently it seems to be in the midst of a deserved rehabilitation. The basic spirit of Pigou*s work is social reform. Pigou was vitally concerned with improving the lot of the people— particularly the English poor of his time. This must be understood, says Mark Blaug, before any competent ^A. C. Pigou, The Economics of Welfare (fourth edi tlon; Londons Macmillan and Co., Limited, 1952). appraisal of his work can be made. 306 IV. THE PIGOVIAN CONCEPT OP WELFARE Pigou stands In the stream of thought, discussed In the previous sections of this chapter, flowing from Bentham and on through Mill and Sidgwick. Pigou made the basic utilitarian assumption that, with some mainly anthropologi cal or cultural exceptions, people have equal capacities for satisfactions. This point of view, whether rightly or wrongly held, is largely responsible for the many unremit ting attacks suffered by Pigovian welfare economics at the hands of the great number of economists who deny the impos sibility of making objective interpersonal comparisons between the levels of satisfaction incurred by different people• "Welfare" like truth and beauty can readily become a nebulous concept; therefore, at the outset, let us con sider what meaning Pigou imputed to the term. Pigou recog nized that welfare is an enormously broad term, that to 7 deal with it without restriction would be a hopeless task. His general idea of "welfare" is surely that of the utili tarians— the sum of pleasures which one has at his disposal. ^Mark Blaug, Economic Theory in Retrospect (Homewood, Illinois: Richard D. Irwin, Inc., 1962), p. 551. n 'Pigou, op. clt.. pp. 10-11. 307 But this definition is somewhat troublesome; it arouses more questions than it answers* Pigou did propose to nar row the scope of the definition by, first of all, paring welfare down to social welfare— the welfare of the commun ity as opposed to individuals* Still, more narrowly, the social welfare of which he spoke is that "which can be brought directly or indirectly into relation with the 8 measuring rod of money*" With this statement, he specifi cally limited his discourse to economic welfare* Precise boundaries between economic and noneconomic welfare are unrealistic, yet if the demarcation has to be made for the expedient purpose of narrowing the scope of inquiry, the "measuring rod of money" can serve as a marker. Thus Pigou discussed those attributes of well-being which can be measured and compared in money terms* His prime concern, however, was not merely to study economic welfare; he wanted to increase it. 7. PIGOU*S BASIC THEMES Despite the great bulk of Pigou*s work, several basic themes, aimed at furthering social economic welfare are readily identifiable* The Nation^ Dividend First of all, Pigou was concerned with the size of 8Ibid.* p. 11. the national dividend and with ways to increase its size. The national dividend corresponds fairly closely to the later developed national incone accounts, nore particularly the account known technically as net national product. Strictly speaking, Pigou adopted the Marshallian definition of the national dividend or income— a flow of goods and Q services produced during the year. The choice of goods and services produced rather than consumed seems to be par ticularly suited to a treatise of economic welfare, for as Kenneth Bo ul ding has pointed out, an increase in con sump tion cannot be thought of as a necessary increase in wel- 10 fare. Bather, the reverse is true. Economic welfare can be increased by additions to the stock of capital, says Bo ul ding, or by measures taken to conserve the existing stock. Boulding's caveat was anticipated by Pigou, for, although the English economist believed that, generally speaking, an increase in the size of the national dividend would increase welfare, he did not simply and flatly state that an increase in output per capita is ipso facto an increase in economic welfare. Bouldlng, however, recog nizes the boredom, and consequent decrease in welfare, which 9Ibid.. pp. 3^-37. I^Kenneth E. Bouldlng, "Income or Welfare?” The Beview of Economic Studies. Vol. XVII, Ho. 2 (19**9”50), 77“B5 j — — — — — — — — — — 309 would result if things were to last forever. He thus sug gests an optimum production period in which an economic decision would be made balancing durability against the need for creativity, Innovation, and change generally. Much of the problem simply revolves around how well welfare can be measured by money. Even economic welfare may not actually be well reflected by an increase in net national product if the Increase represents greater expen ditures for more sickness, forced obsolescence, war, con spicuous consumption, or other similar evidences of infirm ity in the Imran condition. Nevertheless, the evidence clearly supports the conviction, that despite perhaps one or two aberrations, economic welfare is not at a high level in countries of low per capita income. These aberrations, as in the sheikdom of Kuwait, arise, not from the sise of the national dividend, which, in this case, is fairly large on a per capita basis, but from its lopsided distribution. This latter problem is a matter considered at great length within the Economics of Welfare. With full attention paid to the considerations pre viously discussed, Pigou believed that economic welfare could be increased by enlarging the national dividend thus bringing about an ever-larger distrlbuend. Needless to say, simple growth of the national divi dend often has been a solvent for social problems. Ques tions of the equity of the distribution of the national 310 product are frequently mooted aa the absolute size of per sonal income becomes larger, although the relative share may remain constant or perhaps decrease* Particularly is this true with the redistribution of income commonly asso ciated with a persistently creeping inflation* Pigou did not believe that increasing the size of the national dividend is a universal desideratum* An increase in the national dividend should not make the con dition of the poor worse* Neither should anyone be forced to work more than he wishes, said Pigou, in recognizing the increasing marginal disutility of work.3'1' Private and Social Measures With a few qualifications, Pigou gave us a simple indicator of social economic welfare— the size of the national dividend. Among Pigou's qualifications to the principle of an increase in the national dividend serving as an indicator of a certain increase in welfare is his famous set of dis tinctions between cost and gain incurred privately and socially. The discussion of this issue is possibly the greatest contribution of the Cambridge economist. Pigou was, after all, considering social economic welfare* Posi tive neoclassical economics is concerned with private gain; ^ Pigou, op. cit.. pp. 82-86. 311 profit is maximized when marginal cost equals marginal revenue. The same analysis can he applied to the maximiza tion of social welfare. Social economic welfare will he maximized when the marginal social cost of a given project is equal to the marginal social net product it confers. If a marvelous natural harmony existed such that marginal cost were equal to marginal social cost and marginal revenue were equal to marginal social revenue or benefit, the maximization of social economic welfare would he vastly simplified. Unfor tunately, the convergence of the private and social meas ures is not a common phenomenon. The "marginal social net product" is defined by Pigou as the addition of goods and services produced by an increase in input without regard to whom the benefit 12 accrues. The marginal social net products of all lines of activities must be equal. If between uses I and II, MSNP^ > MSNPj^, resources should be transferred from use II to use I. In consequence of the reallocation, the net national product (national dividend) would rise and welfare would he increased. Social costs and products diverge from their private 12Ibid., p. 131+ 312 counterparts in that the person directly responsible for the marginal input of a factor either derives a benefit at a cost to others or confers a benefit upon others for which he receives an insufficient recompense.1^ Land tenure. Pigou*s first example arises from the importance of the traditional land tenure system which was fairly widespread in the England of his time. Tenant farmers fail to receive full compensation for such addi tions and improvements as they might make upon the leased land do not, therefore, take as many measures to improve or conserve the land leased to them as would be in the national interest. The private gain of the landlord is a loss borne by the entire nation; the country suffers an impairment of lL a natural resource, the fertility of its soil. Unrequited benefits. A second type of divergence occurs when A zanders a service to B and, at the same time, also renders a service to C, but compensation cannot be obtained from C. A father may send his son to college and thereby receive the satisfaction of seeing his offspring develop his intellectual abilities. At the same time, the father confers a benefit on society. The population at ^ Ibid.. p. 171+. lifIbid., pp. 17^-183 313 large gains from the presence of trained and educated peo ple In Its midst. Society, however, makes no recompense to the father for the benefit It has received at his hands. In a similar manner, a person may confer a nuisance upon society for which the latter is not compensated. The most frequently cited example Is pollution of the air and water by Industrial firms which escape financial, if not moral, 15 responsibility for the misery and degradation they create. The interests of justice cannot vexy well be served in consequence of instances of unmatched private and social costs and benefits, for income is in no way based upon desert. Further misallocatlon of resources from a social point of view is likely to result. The factory that can escape the full costs of industrial practices by dumping refuse into a previously clear stream or by discharging gasses into the air will be far more likely to expand pro duction than it would if it had to compensate society for the noxious products— the disutility— it creates. Fathers who receive no tangible reward for educating their sons and daughters are less likely to invest in education. Decreasing cost industries. The final source of divergencies between social and private valuations considered l5Ibid., pp. 183-203 31^ by Pigou are those involving decreasing supply price indus tries.^ A decreasing supply price industxy as defined by Pigou is one which **. . . apart from changes in technique or other inventions not due to changes in the scale of out put would be associated • • • with . . . decreasing supply 17 prices." In these industries, an increase in demand lowers the cost at which the output can be produced. Con sumption of the product of these industries ought to be increased Pigou believed; to accomplish this end, he advo cated a combination of subsidies, bounties, and taxes which would induce consumers to direct their purchases to decreas- 18 ing cost industries. Exceptions to the Pigovian concept of decreasing cost industries. Decreasing cost industries have been shown to be something of an anomaly by several economists as yas discussed in Chapter III. The suggestion there considered was that decreasing cost conditions do not long persist. Pigou*s argument is strongest in relation to the case for an increase in Industries in which expansion results in significant external economies. For example, the decision of a number of similar firms to locate within 16Ibid.. pp. 213-228. 17Ibid., p. 217. 18Ibid.. p. 225. a certain geographical area may reduce costs through the elimination of duplication, cross-hauling, or the estab lishment of a trained pool of labor. Vigorous exception to Pigou* s demonstration of the divergencies between social and private product has been 19 taken by Frank H, Knight. Knight feels that Pigou * s non economic analogies are not properly illustrative of the economics of the situations described and that hie assump tions are inappropriate to competitive conditions. In brief, charges Knight, Pigou*s allegations are improperly drawn. Knight points out that increasing costs arise as the price system operates to allocate resources, which under conditions of increasing costs tend to receive rents. How ever, Knight's objection, on this issue only, would not seem to interfere with Pigou* s scheme of taxes and subsi dies. Consumers still could be permitted to pay whatever price is indicated by a free market, but the excess over supply price could be taxed away. Knight * s second objection is more serious. He shows that the external decreasing costs of one industry are the decreasing internal costs of another industry. Further, he 19jrank H. Knight, "Some Fallacies in the Interpre tation of Social Cost," Readings in Price Theory. eds. George J. Stigler and Kenneth B. Boulding (Chicago: Richard D. Irwin, Inc., 1952), pp. 160-179. 316 nakes the point also made by Paul Douglas that decreasing costs lead to monopoly. This outcome necessarily detracts from Pigou* s recommendation that decreasing cost industries be subsidized. If Knight's and Douglas's reasoning is cor rect, society would find itself burdened with heavy indus trial concentration and the consequential burden of adopt ing extensive regulatory practices to protect itself from the natural exploitative outcome of a monopolistic market structure• VI. THE PIGOVIAN SCHEME OP DISTRIBUTIVE JUSTICE Pigou was, of course, concerned not only with the size of the national dividend but with its distribution. His basic proposals for a more just distribution are quite simple. On balance, a movement to greater equality in income distribution is felt to be in the interest of dis tributive justice, and, in consequence, a redistribution of income from the rich to the poor also would be ethically 20 desirable• Transfers from the Rich to the Poor Pigou approvingly noted some instances of voluntary transfers from the rich to the poor. Mostly they consist of some doleful Instances of employer "bounty," as in the 20 Pigou, op. cit.« pp. 705-736. 317 case of the candy manufacturer who compelled his employees under eighteen to participate in regular gymnastic exer cises, and who also assumed a part of the tuition payment for those of his employees who wished to attend night classes.21 Deciding that the few instances of voluntary trans fers that he was able to find offered scant hope for an improvement in social economic welfare, Pigou concluded 22 that transfers must be made mandatory and coercive. The means, Pigou thought, were likely to be "direct taxes graduated against the owners of large incomes and proper ties."2^ Concerned as he was with the relationship of the size of the national dividend to welfare, Pigou believed that the tax should not only be fair, but that it should not have adverse effects on the magnitude of the national income. The contention of the marginal productivity ethicist Thomas Nixon Carver that a minimum of repression of enter prise is obtained by utilizing a tax that imposes an equal oL sacrifice on all was noted approvingly by Pigou. Such a 21Ibid.. p. 713. 22Ibid. 23Ibid. ^ Ibid.. p. 716. 318 tax Is the progressive income tax, which by imposing a heavier absolute burden as incomes rise, strives to keep the sacrifice to each taxpayer equal. To bring about minimum aggregate sacrifice (the utilitarian principle) in taxation, however, would require a steeper scale of progression than would the scale of equal sacrifice. But, noted Pigou, this steeper progres sive rate is quite likely to repress the incentive of some taxpayers and, in consequence, diminish the national divi dend. Pigou admonished his readers to keep in mind that the repressive influence exercised by a tax does not depend on the absolute amount or percentage of the tax, but upon the marginal rate, the amount or percentage the taxpayer would pay if he earned a little less or a little more income • Pigou attached great importance to the role of sav ing in maintaining and increasing the national dividend. Accordingly, he devoted some attention to the effect of taxes on savers, noting that it is possible to construct taxes which can be promotlve of saving (investment in neo classical thinking) by exempting amounts saved or income 26 derived from saving from taxation. 25Ibid., pp. 716-717 26naid.. pp. 717-718 319 The situation with regard to the taxation of estates and Inheritances is somewhat clearer, thought Pigou, He joined with Carver In the doubt that once a certain stand ard of living has been provided for one's heirs that the thought of the acquisition of a considerable percentage of the fruits of one's life work by the state militates against the kind of work that results in the production and accumulation of large fortunes. Pigou*s tacit assump tion here was that the accumulation of large fortunes resrult from the successful undertaking of socially desir able economic endeavors. But, finally, Pigou concluded that the outcome of 27 this analysis was very "nebulous.” Not enough was known about the actual response of the economy and taxpayers to the discussed methods and rates of taxation. As the system of taxation should impair the national dividend as little as possible, so should the transfers to the poor not interfere with its size. Pigou had in mind the unhappy experience under the English Poor Laws which are believed to have caused persons to eschew work in favor of compensated idleness. But all transfers and their effects are not the same, argued Pigou. Per example, he asserted that transfers can be made which would encourage 27Ibid., P. 719 320 provident living. An assessment could be made of what cer tain poor persons could do for themselves. If this amount is not enough to maintain them properly, an income transfer to provide the requisite standard of living could be calcu lated, the payment of which would depend upon the recipients doing whatever work they do in a satisfactory manner. For purposes of incentive he thought that it might be feasible to provide some extra payment for work or output of extra- 28 ordinary quality or quantity. A second type of transfer considered by Pigou is that made upon the attainment of a certain involuntary con dition by the recipient. Examples of this would include old age, widowhood, motherhood, etc. Although the recipient would not be required to offer any productive service in exchange for the transfer, indeed, they probably should be allowed to keep any extra income they could earn, the national dividend would not be affected adversely inasmuch as the transferees of this class ordinarily would not be contributors to it. These payments are frankly relief pay ments, and Pigou indicated his personal belief that they should be made in such a way as to preserve the recipients' 29 egos. 28Ibid.. pp. 720-721 29Ibid.. pp. 722-725 321 Transfers to the poor need not be in the form of money payments, noted Pigou. Transfers in the fora of things may actually be superior, he thought. Pigou was not so much thinking in terms of commodities as he was of parks, playgrounds, free schools, and the like. Parents receiving free education for their children, rather than governmental grants, are more likely to continue working while their children are in school thereby maintaining the national dividend.^0 It is possible, wrote Pigou, that some transfers of this second class may actually increase the national divi dend by causing the recipient to feel more involved with society and therefore more anxious to contribute something to it. As an instance of this, Pigou cited the experience of a fund to provide country outings for city children. When the parents saw the beneficial result of an excursion to the country on their children, they were anxious to develop their own capacities to provide these experiences for their children themselves and thus the parents would work harder and more steadily. Pigou was not completely sanguine about his two classes of transfer payments. He realized that it was quite possible to repeat the experience of the English Poor Laws. He thought that a civilized state could not allow 30lbid.. pp. 725-726. anyone to starve, and would therefore have to provide for a minimus relief payment. What amount this payment should be is all-important, for if it is set too high in relation to subsistence standards, those persons not capable of earning the minimum by their own productive efforts will find it profitable to remain unemployed and apply for state aid. This would lower the national dividend, observed Pigou. Therefore, he thought that some sort of "deterrent condi tions" ought to be attached to transfer payments.One of these conditions already has been noted, that of requiring recipients of the first class of payments to make some pro vision for themselves. Another provision that he thought was necessary in some degree is enforced work. Not only does some of the work contribute to the common good, but it has the salutary effect of diminishing the work-rolls. Pigou cited the reports of some public authorities to the effect that the necessity of doing work other than the kind to which one was accustomed or of doing disagreeable work (e.g., breaking stones) was a sufficient inducement to cause many of the unemployed to find themselves more con genial work thereby removing themselves from the relief rolls. 31Ibid.. p. 730 323 Bounties The payment of bounties on things purchased by the poor is another form of transfer payment from the rich to the poor. Prom an economic standpoint, Pigou felt that there was little to choose between bounty payments and direct transfers. Prom a humanitarian viewpoint, he felt that the methods of making transfers via bounties was less likely to be degrading to the poor than the direct method. The element of charity is less obvious when the transfer is disguised as a bounty than when it is handed over as a blatant dole.^ Pigou identified three types of bountiesOne type is paid on the production of certain classes of com modities thought to be important in the consumption patterns of poor persons. An item whose cost of production exceeded a price thought proper for poor persons to pay could, for example, be subsidized, so that the market price would be less than the cost of production. Anyone buying the corn- mod! ^ty would pay the artificially lowered price, but the main effect would be upon the poor in whose budgets expen ditures on the product bulk large. A second type of bounty is that paid on items 32Ibid.. pp. 737-7W1. 33Ibid. 32*+ actually consumed by poor persons. This type of bounty is represented by low-inoome housing projects. Consumption of the subsidised housing is restricted to a certain class of persons• The third type of bounty is actual interference with the price mechanism, in which more affluent members of society are charged a higher price so that the poor may be charged a lower one. This bounty may be seen in private form in the discriminatory pricing practices of certain physicians and in a public form in the practice of transit companies of charging persons under sixty-five years of age a full or possibly aore-than-full fare thereby subsidizing older passengers who are carried at a fare perhaps less than the cost of transporting them. A National Minimum Standard of Living Pigou thought that it was incumbent upon modem gov ernments to provide for a national minimum standard of liv ing below which the income of any individual would not be allowed to fall. In this, he resembles strongly the thinking of the Rt. Rev. John A. Ryan, who in his Distribu tive Justice, discussed in Chapter IV of this dissertation, endorsed the establishment of a minimum living standard guaranteed by the political authority. 3>fIbid.. pp. 758-767 325 Pigou recognized the transitory nature of a "stand ard But the most difficult problem is the ascertainment of the "proper" standard. The national minimum and distributive justice. A national minimum standard has no necessary connection with justice in the distribution of income, for justice is related to desert, and the national minimum described by Pigou is established and granted without any considered regard for desert. Indeed, a national minimum may conflict with the interests of justice, in that it may represent nothing more than the effort of a society to dodge the issue of justice in distribution by substituting an arbi trarily determined dole for the severe intellectual prob lems and moral soul-searching involved in the quest for justice. Finally, a national minimum is operative only within the realm of the poverty stricken. Distributive justice is concerned with the whole spectrum of income receivers and the justice of their claims to income regard less of their relative positions on an Income scale. The Ethical Problem Throughout the entire Pigovian discussion, the Benthamite foundations of the work are abundantly evident. Social economic welfare should be maximised. Social eco nomic welfare is the sum of individuals' economic welfares. With minor exceptions, previously noted, human beings are attributed with equal capacities for satisfactions. Thus the Pigovian welfare analysis runs aground on the familiar charge of the later welfare economists that it is not possible to make scientifically valid (objectively demon strable) interpersonal comparisons.^^ However, the real problem here, as in the rest of the body of the doctrines of welfare economics of whatever type, is not the problem posed by the ability or inability of making interpersonal comparisons, but is, as Jan de V. Graaf f has pointed out, 36 one of ethics. Whatever problem is involved in the mak ing of interpersonal comparisons, it is not nearly as sig nificant for the purposes of a discussion of distributive justice as is the ability to discuss meaningfully the reason why A should be the recipient of a transfer of income from B. This is not to dismiss the substantial and pertinent problem of making interpersonal comparisons, for it is a real and perplexing question, nonetheless, assum ing that we can determine that the marginal utility of an additional dollar to A is greater than the marginal dis utility of the loss of one dollar to B, the question of 3^A detailed consideration of Interpersonal compari sons and related problems is undertaken in the next chapter. 36j«n de V. Graaff, Theoretical welfare goono»ir>H (Cambridge, England: The Syndics of Cambridge tfaiversity Press, 1957), p. l69« 327 why the transfer ought to he made remains* We do not mean to Imply that this judgment is necessarily more difficult to make than the interpersonal comparison that is involved, hut it does cast considerable douht on the attempt of many economists to purge any sort of "welfare" economics of ethical considerations. Moreover, as will he developed in our discussion of the new welfare economics in the follow ing chapters, the attempt to free welfare economics from ethics or value judgments— to produce a wertfroi discipline — is foredoomed to failure, for, at hase, as in all of science, welfare economics must he built upon that most "unscientific" of foundations— faith. Graaff puts the matter concisely when he says that the very assumption 37 individual preferences sure to count is an act of faith. Such an act of faith is no less heroic than the utility measurements so essential to the normative economics of Benthamite extraction. Much of the sting in the indictment of Pigovian welfare economics by later welfare economists is thereby removed. Similarly, the efforts of many of the most recent writers to impose definite value judgments on the concept of economic welfare and then to test the internal consistency, logic, compatibility, and ultimate effect of these ethical prescriptions by rigorous analytical 37Ibid., p. 1^3 333 procedure8 gain credence. The Rehabilitation of the Plgovian Welfare ca— 6onolusiona Pigou, despite all of the shortcomings of his Economics of Welfare, his imprecision, his ultimate reli ance on the vague reformist feeling rife in the England of his day and before, may be the beneficiary of an unintended rehabilitation. This is not to say that Pigou will be seen as a prophet ahead of his times who has now come to have unique relevance for our day. Quite the contrary, Pigou*s work is most relevant taken as a sociological treatise on the conditions springing from income distribution in the England of the first quarter of his century. Pigovian and the Paretian welfare economics, dis cussed in the next chapter, share in the indictment of their own peculiar severe deficiencies. If the Plgovian analysis falls because of an inability to demonstrate rigor- ously its precepts, then as Mark Blaug says: Paretian welfare economics, on the other hand, achieves a stringent and completely poeivitist definition of the social optimum. The practical relevance of this achievement for policy, how ever, is nil.38 Pigou*s rehabilitation oomes, then, not fror. any "rediscovery" of the pertinency of his work, but from the Blaug, on. cit.. p. 552 329 dawning acceptance that we cannot have meaningful science of welfare economics without value judgments. Hla Myint has noted that the standards of welfare become easy if we welfare are definitely and positively laid down by Pigou. Por his ultimate falling back on "value judgments," Pigou has been excoriated by subsequent writers, but this sup posed weakness may prove to be his chief glory. The honor will be deserved, not because of the Olympian detachment of his moral judgments, but simply because he recognized the ultimate unavoidable necessity of making such judgments if a meaningful economics of welfare were to be established. Any economist can set his standards from whatever source he wishes and rigorously test them for consistency and compatibility using the sophisticated and refined tech niques developed with the methodological framework of the Paretian optimum. But these standards cannot be set with out reference to ethical criteria. The problem, then, resolves itself into the ultimate question, which may be seen primarily as one of faith— what or whose ethics? (Cambri 225. follow Pigou 39 They are "easy" because the criteria of bO Welfare Economics bO Pigou, op. clt.. pp. 759-767 CHAPTER VIII DISTRIBUTIVE JUSTICE WITH A MINOR ETHIC — THE PARETO OPTIMUM I. INTRODUCTION The Nature of the Chapter The purpose of this chapter is to examine any con tributions to an understanding of distributive justice which may be afforded under the aegis of the "new" or "Paretian” welfare economics. The Pareto criterion requires acceptance of the minor, but broad, value judgment that it is a "good” thing to increase the well-being of one person if in so doing the well-being of any other member of the community is not thereby decreased. If total well-being is conceived of as being the sum of individual well-beings in a community, it is apparent that aggregate welfare will be increased when the well-being of one member of the community is increased and the well-being of all others is left undisturbed. Moreover, if total well-being is considered to be the sum of individual well-beings, it is obvious that any gain in the welfare of one individual sufficient to overcome a loss 330 331 of other individuals' welfares, possibly occurring in con sequence of an increase in the well-being of one person, would increase total or community welfare* If, for example, Adam Smith, David Ricardo, and Thomas Mai thus are the mem bers of a three-man economy, the total welfare of the com munity might rise, let us suppose, by transferring some of the individual incomes earned by Adam and David to Thomas* We shall assume that the rise in Thomas's welfare is more than enough to cover the diminution in welfare suffered by the other two* But unless we can say something about the relative deservingness of each member of the community, we cannot unequivocally say that the described transfer of income should be made. In other words, we seem to be estopped from making any very worth-while prescriptive statement about the income distribution that Hought" to be, unless we can assess the ethical claims to income existing between Adam, David, and Thomas. Inter- and Intrapersonal Comparisons In his classic work the Principia Bthica* the British philosopher S. E. Moore defined the principle of hedonistic utilitarianism as holding that "The greatest pleasure of all is the sole good." The principle of egois tic utilitarianism he declared to be that "Hy own greatest 332 pleasure is the sole good."^ Moore, himself, in his Ideal utilitarianism held that although pleasure is a part of the 2 good, it Is not the whole of it. There sure other values such as the development of moral character, the growth of human love, and the pursuit of intellectual and aesthetic ends which, with pleasure, compose the good. But in all reformulations of utilitarian philosophy, the utilitarian principle is the guide to action, to wit, that course of action ought to be adopted which will produce, on balance, the greatest total good. Protagonists of the Paretian welfare economics are not precluded from regarding the good as more than simple pleasure, but the utilitarian principle is fundamental to the new welfare economics in that this branch of economic thought is vitally concerned with states of well-being. The opening section of the immediately preceding chapter con sidered the attempt of Jeremy Bentham to construct a "felicific calculus.” The augmentation of aggregate eco nomic welfare, that is, the guiding principle of hedonistic utilitarianism is consonant with the methodology of the new welfare economics, but the assumption by welfare economists of the premise that it is impossible to make objectively 1G. E. Moore, Pvinoipia Ethica (Cambridge, England: Cambridge University Press, 19&2J, p. 109. 2Ibid.. pp. l*t2-225. demonstrable ("scientific”) interpersonal comparisons has led to the embrace of a much weaker ethical guide than that of hedonistic utilitarianism. All that welfare economics can say in the way of a guide to conduct is that an eco nomic realignment ought to be undertaken to improve the position of one person only if the position of no one else is thereby diminished. Thus welfare economics retreats from hedonism toward egoism. The welfare considerations of one individual are allowed to interfere with the welfare considerations of another and with the welfare of society as a whole. If, as is commonly charged, hedonistic utili tarianism is incapable of generating an adequate conception of justice, it would seem more likely that welfare econom ics in its withdrawal from pure hedonistic utilitarianism would be unable to generate or appraise a complete or satisfying ethic of distributive justice, A welfare economics that accepts the premise that it is possible to make valid comparisons of levels of well being between the individuals comprising a society will yield more appealing results than will one which accepts the premise that such comparisons cannot be made. Appeal ing or not, the charge lodged against the employment of a "feliciflc calculus" to maximize welfare is that it is impossible to make comparisons of well-being or utility between persons. 33^ One of the beat-known and most vigorous attacks upon the scientific validity of interpersonal comparisons is that of Lionel Robbins who, in denouncing these assessments as value judgments, believes that economists risk their professional reputations in confusing normative and posi tive statements.^ The belief that interpersonal compari sons have analytical validity stems from a misreading and misapplication of the law of diminishing marginal utility, says Robbins. Owing to the implication that the more one has of a good, the less he must value it, the unwarranted conclusion has been drawn that the satisfaction derivable from an additional unit of income is less to a rich man than it is to a poor man. The probability of such an assizqp- tion is, however, in the view of Robbins, nil. The longing for some method whereby it is possible to say that the utility of an extra dollar to Adam is twice as great as the utility of an extra dollar to David is understandable• As Robbins has noted, such comparisons are at the base of much that has been written on public finance, and these utterances have served to justify much that has i been done in the name of equality, or, as we might say, L I justice. In Robbins's words, "The proposition we are i I | 3 L i on el Bobbins, Aw f t mat on the Hature and Signifi cance of Economic Science (second edition; London: I Macmillan and Co., Ijimlted, 19^0), pp. 136-158. ! ^Ibid.. pp. 136-137. 335 examining begs the great metaphysical question of the scientific comparability of different individual experi ences."^ The Robbins1 argument is that although it is possi ble by a number of psychological or statistical inquiries to find in what order individuals Adam and David each pre fer goods (alternatives) I, Y, and Z, there is no possible way of comparing the judgments of Adam and David as to the relative merits of good Z as opposed to goods X and T. Similarly, the general view is that there is no possibility of making a statement of objective validity about the changes in utility accruing from the transfer of one thousand dollars per year from Adam*s income to David's income. Robbins emphasizes that, "There is no means of -thft magnitudes of A's satisfaction as compared with f i l s-"6 J. R. Hicks, the general equilibrium theorist, agrees 7 emphatically with Robbins* essay. Nicholas Kaldor, in joining with Robbins and Hicks, says, "It is quite impossi ble to decide on economic grounds what particular pattern 5Ibid., p. 137. ^Ibid.. pp. 139”1**0. Italics in original. . R. Hicks, "The Foundations of Welfare Economics," Economic Jnuynal. XLIX (December, 1939)t 697. 336 Q of income distribution maximises anci&l welfare." The impasse to making any sort of prescriptive statement within the body of welfare economics is avoided by using intrapersonal comparisons. The Benthamite goal of the augmentation of total or community welfare is rehabili tated in an attenuated form by stating that the utility of one person ought to be increased if no one else is harmed. The sole judges of gain and loss are the individual members of the community. Thus, if in the course of trade between the three parties Adam, David, and Thomas, it is possible, by some action, to make Thomas feel better off without mak ing the two former feel worse off, such an action ought to take place. Injunctions formed from the "ought" in statements of the sort just discussed are extremely weak as ethical prescriptions. The direction given by the ethic of the Pareto optimum is less clear than courses of action dic tated by utilitarianism in either its egoistic or hedonis tic forms. The prescription of the new welfare economics says, "I ought to increase my well-being if I can do so without hurting anyone else." Therefore it falls short of the egoistic principle which says simply that I ought to ^Nicholas Kaldor, "Welfare Propositions and Inter personal Comparisons of Utility," Bftnnnaic Journal. XLIX (September, 1939)» 551* 337 increase my well-being whenever I can. On the other hand, the ethic of the Pareto does not follow the rule that an action should be taken which will enhance ay welfare even If it diminishes that of another, provided that mj gain in welfare is enough to offset the loss by someone else, to the end that the total welfare of the community rises. The "ought" in welfare economics relates mainly to efficiency. If a change can be made that comes within the purview of the Pareto optimum, we are informed that the present state of economizing is Inefficient and that if efficiency is to prevail, there must be a change in, say, distribution • From the preceding argument, the conclusion should not be drawn that economists should avoid ethical Issues or that welfare economics cannot be helpful in the study of distributive justice. Ethical knowledge, despite its Olympian nature, is practical knowledge, contends the British philosopher 9 P. H. Kowell-Smith. The conscious avoidance of ethical issues because of the feeling that they are unscientific removes one from reality. Ethical questions are too per vasive to be permanently excluded from consideration of those persons whose specialty it is to study those 9P. H. Nowell-Smith, Ethics (LondonI Penguin Books, 1959), p. 11. 338 relations which develop between people in society as they cope with the economic problem of scarcity. Comparatively recently, many economists have addressed themselves to the problem created by the virtu ally complete inability of the Paretian welfare economics, despite bolstering by all of its modifiers, to say anything directly of an ethical nature on the distribution of income. These economists have been and are working to build upon and within the methodology of welfare economics syterns of analyses which will be capable of dealing with matters of ethics with intellectual rigor. Some of these scholars are trying to ascertain if an ethical standard can be promul gated, and if it can be, then the question is, can it be made usable for economic policy? To a degree, then, it may be said that Paretian welfare economics stands in loco parentis to the newer ethical study and to a considerable degree supplies it with whatever intellectual and analyti cal rigor it may have. Value Judgment.« and Interpersonal Comparisons Satisfactory resolution of the problem posed by the inability to make interpersonal comparisons might facili tate the application of welfare economics to issues of dis tributive justice, but it would provide no answer to the Initial question of what justice is. Bobbins seems to be quite wrong when he dismisses 339 Interpersonal comparisons as "value judgments." The inabil ity of welfare economics to confront ethical issues directjy is more serious than Bobbins supposes. There are two reasons why Paretian economics can say little if anything about ethical issues in income distribution: interpersonal comparisons and value judgments. The real problem is that of value judgments, or more precisely, ethics. To take an ideal case, suppose that a "util meter" exists, so that completely objective interper sonal comparisons are available. Nov suppose that we con nect our subjects Adam and David to the util meter and find that the marginal utility of an extra dollar to Adam is ten utils, while David's reading is twenty utils. What are we to do with such information? There is nothing in the respective readings to indicate what course of action we should pursue in assessing how income ought to be dis tributed. Further factual information may or may not help. David may be a miser and like dollars for themselves. Ethically speaking, this piece of information is not help ful. We must have an ethical standard before we can make a distributional judgment on the basis of justice. Interpersonal comparisons nay be intended to be statements primarily of fact and not of value • The attri bute of factuality diminishes directly with the competence of the comparer. The problem of interpersonal comparisons, 3^0 then, is not that of valuation, but the ability of the com parer. The British economist I. M. L. Little has taken sharp issue vith his countryman Bobbins on this matter. Little forcefully delineates "interpersonal comparisons” from "value judgments." Value judgments, holds Little, are pronouncements having "recommendatory" or "persuasive" force and are always stated in the indicative mode, so that they may not be interpreted as commands Interpersonal comparisons are descriptive judgments, but they are not value judgments. Little contends that to say "*A's economic welfare is greater than B's'" is not the same as declaring that "happiness could be Increased by giving money from A to B."11 The problem posed by interpersonal comparisons was obviated by assuming that all men have equal capacities for satisfaction. The weakness of utilitarianism and its attenuated reformulation as Paretian welfare economics applied to assessing the distribution of welfare is not so much interpersonal comparisons as it is simply values or ethics. With this limitation in mind, we shall now turn I. M. L. Little, A Critique of Welfare Economics (second edition; Oxford: Oxford University Press, I960), p. 68. 11Ibid. 3M to a consideration of the pure Paretian welfare economics. II. FOUNDATIONS OF PARETIAN WELFARE ECONOMICS To set the date of a scientific discovery, the enunciation of a new theory, or a major revolution in thought is never very helpful at best; at worst, It can be meaningless and misleading. Thus it is not worth-while to attempt to name a year in which welfare economics can be said to have appeared in even a primordial state. The development of welfare economics— and from now on we shall mean the "new" welfare economics— was too diffuse, its antecedents too heterogenous, to state when it was born. Yet, it is perhaps proper, as a point of reference, if nothing else, to establish some time period in which wel fare economics came to be regarded seriously by competent scholars as a branch of the science of economics. We find, then, that the literature usually holds this period to have 12 been the late 1930's or the early 19^0*s. Toward the end of the 1930's, a great deal of sig nificant foundational work was begun in welfare economics, and after 1939> welfare criteria were largely the intellec tual progeny of the so-called "Paretian optimum," named for its propounder the Italian economist-sociologlst, 12E. J. Mishan, "A Survey of Welfare Economics, 1939-1959*" The Economic Journal. LXX (June, i960), 218. 3*+2 Vilfredo Pareto. Pareto developed his specification of an optimum (and innocuous) condition of welfare a number of years prior to 1939. Welfare economics, however, did exist in an exceedingly rudimentary form prior to the time when Pareto's work was incorporated and expanded into a fairly well unified body of thought by his intellectual disciples. John Richard Hicks, one of the foremost of Pareto's followers, made an important early contribution in 1939 in his article "Foundations of Welfare Economics."'1 '^ Immedi ately prior to Hicks* work, Abram Bergson (Burk) had con tributed a landmark article in which he surveyed the value judgments implicit in the early work of Enrico Barone and Abba P. Lemer and had expressed in mathematical notation llf the concept of an economic welfare function. Since the time these early and important contribu tions appeared, some of the greatest names in economic thought have applied their talents and scholarly attain ments to work in welfare theory. Despite the brilliance of the company, welfare economics is commonly regarded as existing in a most unsatisfactory stateSome authorities l^Hicks, op, cit.. pp. 696-712. ll+Abram Bergson (Boric), "A Reformulation of Certain Aspects of Welfare Economics." The Quarterly Journal of EconomjgC^, LII (February, 1938), SlO-331 *• ^^Mishan, on. cit.. p. 197* despair of it altogether.1^ 3*0 Vilfredo Pareto (I8*f8-1923) Vilfredo Pareto was an astoundingly brilliant, erudite, sometimes misunderstood, and often maligned Italian economist-sociologist of the early years of this century to whom the appellation "Machiavellian" was undeservedly 17 applied. He was the successor in the "School of Lausanne" of the great Leon Walras, the pioneer developer of general equilibrium methodology in economics. Pareto stands midway— a transitional!at so to speak— between adherents of two respective convictions, cardinal versus ordinal utility. There are some who have bemoaned the passing of the concept of cardinal utility as the end of any possible relationship between economics and ethics. !6jan de V. Graaff, Theoretical Welfare Economics (Cambridge, England: The Syndics of Cambridge University Press, 1957). 1 ^Pareto was once hailed by the Italian fascists as an intellectual apologist for their ideology. In the last months of his life, Pareto was made a senator (largely an honorary position) by the then fledgling dictator Benito Mussolini. However, as Hutchison reports, Pareto spent his last days admonishing the government to repudiate war, not to impose punitive taxes on the rich, not to Infringe the freedom of the press, to avoid alliances with the Roman Church, and to leave academic freedom in the universities unhampered. See Terence Wilmot Hutchison, A Review of Economic Poetries, ^870-1929 (Oxford: The Clarendon Press, 1953)» P* 2I0. ^Ldon Walras, Rj^my^s d* Economic Politique Pure ou Thdorie de la Riche see So dale (Edition Definitive: Paris: 5. PicHon etR. Durand-Ausias, 1926). 3Mf They have bitterly assailed those vho assert the impossi bility of making valid interpersonal comparisons, asserting that without such judgments any hope of attaining a greater measure of social justice becomes less likely, W, Stark, a representative of this thinking, in arguing that the posi tion opposed to interpersonal comparisons is untenable says: We know enough of our neighbours' heart to be per fectly certain that, like we, they long for happi ness and flee from misery. The great commandment: do unto others as you would that they should do unto you, has been acknowledged by all mankind as the best guide to social harmony and happiness. It is built on the principle of equality. It must indeed be admitted that no exact interpersonal com parison of pqychic magnitudes is feasible: but it is very poor logic to conclude for this reason all comparison is out of the question,1” Stark seems to have capitulated into the enemy camp without knowing it. It is not that the proponents of ordi nal utility measurement so much dispute the possibility of making interpersonal comparisons, but only the impossibil ity of rendering them in a completely objective form, Fur ther, the "Golden Rule" cited by Stark places great emphasis upon intrapersonal comparisons (as does welfare economics) as whoever would apply it must examine his own preference scale to decide just what it is that he ought to do to others. Then, of course, the utilitarian principle is applicable: "Someone else ought to respond to my own !9w. Stark, The Ideal Foundations of Economic Thought (New Tork: Oxford University Press, 19*+*+), p.£Il. decision the way 1 do." The element of chance is extremely heavy in such a judgment, and the possibility of creating an injustice looms large. III. UTILITY MEASUREMENT AND INDIFFERENCE A Matter of Irrelevance The measurement of utility is a matter of little consequence to this dissertation. Similarly, the concept of indifference, so troublesome to some, can be disposed of rather easily. Cardinal Utility The basic assumption of the utility or Cambridge school was that the aggregate welfare of a community con sists of the simple arithmetic sum of the cardinal utili ties of the individuals comprising the community. Thus the welfare function for the community is: W = fCU-L, u2, ... Uq) . For a community made up of three persons, Adam, David, and Thomas, total or community welfare is the sum of their individual satisfactions: W . Ua ♦ Ud ♦ Ut. The neoclassical economist Alfred Marshall, in his analysis, utilized the concept of utility as the ability 3*+6 of a particular good or service to confer Benthamite pleas- 20 ure on its consumer. Marshall considered the demand for a given good or service in isolation. As a consumer increases his consumption of a particular goody a point is reached at which the utility of each unit to the consumer is less than the previous unit consumed. This is the same thing as saying that after a certain point is reached in the consumption of a good or a service, the total utility derived from consuming a good will continue to increase at a decreasing rate. It may be true, of course, that a good may come to have negative utility or disutility, so that total utility will actually decline if consumption is carried beyond a certain point. The rate at which total utility changes is marginal utility. The curve of marginal utility has a negative slope showing that each increment in the consumption of a good or service produces succes sively smaller increments of pleasure. Information about a consumer's utility service would be a valuable addition to knowledge, but it would not solve the problem of justice in distribution and hence is not particularly germane to this study. Ordinal Utility The dissatisfaction with an intellectual construct ^Alfred Marshall, Principles of Economics (eighth edition; New York: The Macmillan Company, 19^8), pp. 92- 101. 3*f7 which involves immeasurable units of utility led scholars away from the cardinal to the ordinal system. The aggre gate level of well-being in a community remains dependent on the individual satisfactions of the individuals in the community, but total welfare is not the sum of individual utilities inasmuch as ordinal magnitudes are not addlble. The assignment of units of utility increments to goods and services is not necessaiy under the ordinal sys tem. An individual simply ranks goods and services in order, according to his personal preferences. Indifference The study of choice using the ordinal system involves the concept of indifference as exemplified graphi cally in the indifference curve technique. Early contributors. In the late l800*s, the British economist P. Y. Edgeworth developed the so-called indiffer- 21 ence curve technique. The half-century that followed Edgeworth's modest offering saw the development of the technique in the general equilibrium economics and welfare economics of Vilfredo Pareto. Pareto's indifference curve technique was made available to English-speaking economists by J. B. Hicks, who, through extensive use of the technique 21Francis Y. Edgeworth, Mathematical Psychics (LondonC* Kegan Paul A Co. , 1881), pp. 21-22. 3^8 stated general equilibrium economics in a rigorous and 22 nonmathematical form. The maximization of consumer satisfaction graphically depicted. Figure lM- depicts the choice-making activity of a consumer who chooses betveen the alternative bundles of goods X and Y. His indifference map is shown by the con tours I, II, and III. The consumer's level of satisfac tion increases as he moves away from the origin. Thus curve III represents the highest level of consumer satis faction visualized on the graph and curve I the lowest. Since each contour represents a particular level of satis faction, the consumer is indifferent to his position on a curve. Thus on curve I, for example, the consumer regards himself equally well off at points h, i, and j. He is indifferent to the combinations of X goods and Y goods represented by any points along I of which h, i, and j are only three. The convexity of the contours or indifference curves graphically illustrates the diminishing marginal rate of substitution of one bundle of goods for the other. The diminishing marginal rate of substitution is the counter part of the principle of diminishing marginal utility so ^J. B. Hicks, Value and Capital (Oxfords The Clarendon Press, 1939)* 3^9 Y C C III II 0 THE MAXIMIZATION OP CONSUMER SATISPACTION 350 important to the cardinal system of utility. The principle of the diminishing marginal rate of substitution indicates that as the consumer acquires more X goods, the less willing will he be to give up some T goods in order to get further increments of X. The rate at which X can be substituted for 7 diminishes. As the consumer moves along, say, curve I from point i to point 3, he is willing to give up fewer units of 7 goods to get an additional increment of X goods. As the consumer moves along curve I from i to it takes successively more X goods to compensate him for the T goods he must give up in order to obtain more X. Similarly, if we reverse the motion along the curve and proceed from point j to point 1, the consumer requires ever Increasing quantities of T goods to make up for the units of X goods he must give up in order to have more T goods. It is important to bear in mind that as the consumer moves along a given indifference curve, the loss of satis faction entailed in giving up one good for the other is exactly balanced by the increase in satisfaction from the Increase in consumption of the alternative good. Thus the consumer's level of satisfaction is constant as he travels from i to 3 or from j to i to h. Although the consumer is indifferent to the combina tion of goods and services lying along any indifference curve, he is not indifferent to points on different indif ference contours. For example, the consumer in our 351 Illustration would prefer point k lying on II to any point on curve I, and he would prefer point 1 on curve II to k or any other point on curve II. The consumer's level of satisfaction increases as he moves from I to III and decreases as he moves from III to I. The contours thus show us what the consumer would like to do, but we can only tell what the consumer will do if we know how much the con sumer has to spend on the things he buys. The individual's ability to climb the "hill of pleasure" depends upon his economic strength, the value of the quantities of those things that he is able to exchange for X and T goods. For the first time, in this brief sur vey of indifference curve technique we have encountered a question of direct relevance to this dissertation— the economic strength of an individual. For our purposes here, let us suppose that an indi vidual's economic strength depends entirely upon his income, the quid pro q u o which he receives for rendering an econom ically productive service to the community. We can say that the ability of individual to consume X goods and Y goods depends entirely upon what he has to sell to others in the economy and the desires of others to have his offerings. We shall assume initially that the individual’s income is such that if he were to spend all of it on X goods he could purchase OB quantity of X, and if he were 352 to spend all of his incone on T goods he could buy quan tity 01. If we connect points 1 and B by a straight line, all points lying along IB show us the infinitude of com binations of X goods and Y goods the consumer can purchase with his income. We may say that the indifference contours show us what the consumer would like to do, and the line IB, the "budget line" shows us what the consumer can do. To find what he will do, we use both the budget line and the indif ference contour. The rational consumer will do the best for himself that he can within the limits of his income. We therefore say that the rational consumer maximizes his satisfactions subject to a budget constraint. With his income as given by the budget line IB, the consumer will take Ox quantity of X goods and Oy quantity of Y goods. The consumer takes those combinations of goods represented by point k lying on IB and II. Although the consumer could take combinations of goods represented by points lying on curve I, there is no need for him to do so, since his income makes it possible for him to enjoy a higher level of pleasure. And although he might like to enjoy those combinations of X and Y represented hy points lying along III, his income will not permit it. He is restricted to buying those combinations represented by points lying along AB. The rational con sumer , however, will not take any combinations of goods represented by points on AB, for only at point k will his satisfaction be maximised within the limits of his Income* All points other than k on AB must be Intersected by Indif ference curves representing levels of satisfaction lower than that enjoyed at II. The consumer will therefore arrange his purchases so that their consumption will provide the highest level of satisfaction open to him. Such a point is k situated at the point of tangency of curves II and AB. Although the consumer would be equally well- satisfied at any other point on II, his budget will not permit him to buy any other combination of X goods and T goods than that at k if his pleasure is to be at a maximum. The only way in which the consumer can obtain an increase in his well-being, given his preference nap, is to receive an increase in his ability to command more goods either through an increase in the valuation of those things which he offers in exchange for everything he buys or by a decrease in the price of some item or items that he con sumes. Figure l*f depicts the behavior of the consumer should the price of T goods decrease such that were he to spend all of his income on them he could buy OC quantity of T rather than OA. The budget line would now shift to CB, and it would establish tangency to indifference curve III 35»f at point 1, The consumer would now purchase Ox' of X goods and Oy' of T goods* His pleasure would be increased over what it was at point k inasmuch as the shift in the budget line has established tangency at a higher contour of well being* Many textbooks on economic theory rigorously demon strate that the two approaches, cardinal and ordinal util ity, lead to the same position of consumer equilibrium, e *g*, dY/dX = Px/Py * MUx/MUy, where the ratio dY/dX is the marginal rate of substitution of X for Y, Px/Py is the ratio of the prices of X goods and Y goods, and MU and MU are the marginal utilities of X ■ “ * J f 23 goods and Y goods, respectively* Pursuing either route— the cardinal or ordinal approach— we come to the same conclusion; the rational con sumer allocates his Income upon an array of goods and ser vices so as to maximize his satisfactions. He does this whether he compares the satisfaction derived from various goods on a cardinal or an ordinal basis. "Economic welfare," as developed so far, seems to be 23 ' ’ 'See Michael J* Brennan, Preface to Econometrics ( Cine innatl: South-We stem Publishing Company, i960), pp. 182-18^. 355 a function of desire and the Beans of fulfilling that desire. One could, then, increase his felicity hy increas ing his power to satisfy his wants or by reducing his scale of wants. Both courses of action have been urged through* out history. In ancient times, Aristotle, the exponent of the golden mean, urged moderation in all things and advo- 2l+ cated a limit to wealth seeking. The ethics peculiar to Eastern thought has taught the virtue of asceticism. The West, in thought and in action, has, for the most part, chosen the path of increasing the desire for and the means to produce goods and services. Ironically, this makes the problem of distributive justice more meaningful to the Western mind, although the problem Itself may have greater pertinency in those areas of the world influenced by the ascetic tradition. The irony is strong, for the path chosoa by the West has been criticized in that the acquisition of more power to satisfy pre-existing wants leads on to new and higher want levels. Moreover, there are those who con tend that advanced economies depend upon a pattern of incessant want-creatlon for their economic healths. Problems relating to the concept of indifference. The concept of Indifference as developed in this section p i * . Aristotle, The Politics. trans. Benjamin Jowett (Mew Yorks The Modern library*19^3)* PP* 6o-72. 356 has been a source of acute Intellectual discomfiture to a number of economists. L. H. Haney, for example, feels that it is merely a negative of an already indefinable although 25 positive concept. Economists who abhor the vagueness they claim to find in the concept of "indifference" are wont to illus trate their position with the parable of "Buridan’s Ass." This most unfortunate of donkeys, so the fable goes, found himself equidistant from two different piles of equally satisfying hay. Being indifferent to either pile, the poor beast could not decide from which pile he ought to lunch and subsequently starved to death. Doubtless the concept of "indifference" is trouble some in view of the controversy it has generated. However, it is possible to give it a clear meaning for the purposes of welfare economics. A consumer is regarded as being indifferent between any combinations of goods and services if they represent equal levels of satisfaction. Thus in Figure l*f, the consumer is indifferent to all combinations of X goods and Y goods represented by points lying along a given contour; for example, on curve I, u(h) * u(i) = u(J). A ■attar of irrelevant— »<mclusion. A function ^^Lewis H. Haney, History of Economic Thought (fourth and enlarged edition; sew York: The Macmillan Com pany, 19^9)* p. 801. 357 describing choice does not seek to explain why the consumer makes the choice he does, but only to describe the choice he has made. This does not Involve the measurement of utility. Moreover, the tears shed over the demise of neo classical utility theory seem to be misspent in that the older theory really never explained choice either. But, as Graaff has said, "The idea that the measurability of util ity has something to do with welfare economics dies very 26 hard." In amplification, Graaff says: We can number men*s indifference curves and formal ise our ethical judgements regarding the way in which their various levels of indifference contrib ute to social welfare without mentioning utility or its measurement .2/» *0, 259 26 Graaff, op. cit.. p. 37. 27Ibid. oft Graaff has stated this matter succinctly in four propositions: M(i) Since we core interested in how a man would choose if he were given the opportunity for choice, the measurability of utility is irrelevant as long as the utility function does describe his choices. (11) ’Util ity,* 'satisfaction,* or 'individual welfare* need not necessarily exist. To say that it is higher in one situa tion than another is just a way of saying how the nan con cerned would choose, (lii) Exactly the same ethical judge ments are required to pass from individual choices to social welfare whether or not such a thing or quantity as utility exists, whether or not it is measurable, (lv) The nature of those ethical judgements, and nothing else, determines the measurability of social welfare." ibid.. p. 58. ^Bor a view partially in opposition to that of Graaff, but seemingly founded upon a difference in the interpretation of the meaning of "utility," see Tapes Majumdar, The Measurement of Utility (London: Macmillan * Company, Ltd., 1901)9 p. 132. IV. INDIVIDUAL AND SOCIAL INTERESTS 358 We have now considered the process by which an Individual Maximizes his own satisfaction to the best of his ability. Although the foundation thus laid is funda mental to the line of inquiry we shall now pursue, the situation as it stands has little application to ethics or problems of distributive justice, for these are social questions; they arise in and from the relationships of tnm»w beings, one with another. Thus we shall now, and for the remainder of this chapter, consider problems of social economic welfare. Social Harmony In concept, Jeremy Bentham's "felicific calculus" is a salutary idea. Neglecting in this instance the crudi ties of hedonistic utilitarianism, the prospect of being able to measure and increase the total utility of a commun ity would seemingly be a step forward in man's quest for the good life or good society. In Bentham's works, the total utility of a community is equal to the sum of the individual utilities of the people comprising the commun ity. Using a "felicific calculus," an attempt would be made to achieve a combination of individual utilities which, when summed, would give the largest possible utility— the greatest good for the greatest number. For example, in a 359 two-good economy, we would proceed to find the distribution of X and T which would give the greatest total social util ity. Two Objections to the Principle of *ir\ir ±hm Greatest Good The first objection. It is not particularly clear that individuals qua individuals, or for that natter groups qua groups, are at all interested in maximizing total util ity. Human behavior, despite the vast and undoubted out pourings of altruism that have occurred in the history of the race, suggests otherwise. Human beings are gregarious, interdependent, and co-operative, but they are also com petitive, clannish, and given to conflict. As an individ ual, a person is quite likely to be more interested in maximizing his own pleasure, although this may prevent the total pleasure of society from being maximized .3^ Human groups of all sorts— business, labor, racial, religious— characteristically pursue courses of conduct unabashedly designed to promote their own peculiar interests first without the slightest regard as to what may happen to the good of the greatest number. 3°This is Cor is much like) the principle of egois tic utilitarianism. Perhaps this suggests that this earlier form of utilitarianism is psychologically more realistic than the hedonistic form. Many of the social philosophies of the past were cognisant of patterns of conflict hat optimistically asserted that mankind has an undeniable impulse to co-operate— to live in harmony— and would do so if an appropriate social organisation were constructed. Theories of social harmony, although they strive for the same end, are often unequivocably opposed. For example, the famous "invisible hand" doctrine of Adam Smith recog nized and made use of man's inclination for farthering his self-interest, but, at the same time, showed how the good of all would be promoted to the highest degree under the 01 system of laissez-faire competition The institution of capitalism was, however, viewed by Karl Marx as the cause of conflict— a cause rooted in class antagonism. Marxist thought is that the "internal contradictions" of capitalist society inevitably work to its downfall after which the class structure of society will disintegrate, and men will unite in promoting the good of all.32 Theories of social harmony long have been in disre pute. Gunnar Hyrdal is a notable representative of those 3^Adan Smith, The Wealth of Nations, ed. Edwin Caiman (Few York: The Modern Library, 1957), p. *t23. 32]£arl Marx, Capital. trans. Samuel Moore and Edward Aveling; ed. Friedrich Engels (New York: The Modem Library, n.dT), pp. 557-585, 671-783. 361 who dispute the notion, fondly held in many quarters, that fundamentally all diverse phenomena and interests ulti mately must or can be harmonised. He notes that both Ricardo and Marx fell into the trap of social harmony. Ricardo saw the clash of human interests, says Jtjrrdal, but persisted into lapsing into laisses-faire arguments. Marx, Myrdal argues, clung to vestiges of the social harmony idea in his apparent acceptance of the contention that the com mon welfare depends upon natural phenomena inherent in certain productive conditions. J If the basic characteristic of human conduct is con flict, as C. West Churchman suspects it may be, the search for the maximization of total welfare via the path of the 3*t harmonizing of interests must stop at a blind end. If Churchman's supposition is the correct appraisal of man kind's in-built psychological predisposition, the view points of the theorists of social harmony are seriously weakened. Perhaps Marx's thesis is somewhat more seriously affected than that of Smith, for a psychology of conflict leads to a philosophy of individualism. The ethic and 33(Junnar Hyrdal, The Political Element in the Devel opment of Economic Thought, trans. Paul Streeten (Cambridgee harvard University Press, 195*0, p. 195. *C. West Churchman, Prediction and Optimal Decision (Englewood Cliffs, Hew Jersey: ^rentice-Hall, Inc•, 196l}, PP. 375-377. 362 determinism of the Marxist vision of ideal communism is impaired if dissatisfaction is a fundamental and ineradica ble property of the human personality, for there could then be no final, noncontradictory state. Churchman suggests that if the welfare of society must make room for, indeed, must depend upon conflict to some extent, then cm ideal society should be so ordered as to make the best social use of individual actions-^--all of which sounds very Smithian. Churchman removes himself from an impasse by assert ing that man does not pursue every kind of conflict; that course would lead to his destruction. Bather, he pursues the "suitable" conflicts of discovering new knowledge, better ways of making better products, and establishing fuller co-operation.^ Churchman's course seems to be a circuit; the "suitable conflicts" resemble rather strongly modes of conduct regarded by others as co-operative. In summary, the line of argument in opposition to the maximisation of the total social utility is not that it could not be done, but rather that the members of society would not wish it done. Individuals would fear that the chance of maximizing their own welfare would be jeopardized. 3?Ibld.. p. 377 36Ibld. 363 The second objection. The second objection Is that It is open to question that the principle of the greatest good for the greatest number is a desirable goal. Perhaps the attainment of the greatest total of individual utili ties would not be consonant with the ends of justice • For example, in the two-man community of Adam and David, total satisfaction may rise markedly by a transfer of income from David to Adam, but Adam may be a miser and enjoy the simple possession of more wealth. There is nothing to indicate that the transfer ought to be made other than the rather weak ethical proposition that individual wants ought to count. For this reason, among others, the ethic of hedon istic utilitarianism has been severely criticised as being woefully insufficient to be an adequate guide to justice. This issue is considered in greater detail in the final chapter of this dissertation. V. THE P ABET IAN PROLOGUE TO DISTRIBUTIVE JUSTICE Welfare economics, as Kenneth E. Bouldlng has observed, attempts to judge what courses of action are economically desirable even though other courses may be 37 desirable ethically or politically. HEconomic desirabil ity, " however, can form an exceedingly important part of ^Kenneth E. Boulding, "Welfare Economics," A Survey of Contemporary Economics. Vol. II, ed. B. P. Haley (Homewood, IllTi bichard D. Irwin, Inc., 1952), p. 3. 36*f ethical desirability, for it Is quite impossible to sever completely efficiency from equity. Achieving th« Paretian Qptin™ Achievement of the Paretian optimum can be shown by indifference curve analysis. To do this, we shall assume that there are two individuals, Adam and David, who trade with each other. These two persons consume only X goods and T goods for which they pay identical prices. The analy sis is kept simple for presentation and clarity. It is, however, applicable to an economy made up of numerous con sumers choosing from among a wide variety of objects of want satisfaction The Edgeworth Box. In Figure 15, the so-called "Edgeworth Box" diagram has been formed by revolving and superimposing David *s indifference map on that of Adam such that the origin of one is diagonally opposite the origin of the other. The total quantities of X and T available to consumers are 0ax and 0ay, respectively. The "contract curve" CC is the locus of all the points of tangency of the indifference curves of the two parties. When the Paretian optimum is attained, the dis tribution of X and T must occur along the contract curve. We shall assume initially that Adam and David are at point A. Here, Adam is consuming 0a^ of X and 0ay^ of Y. 365 D V* VI IV FIGURE 15 ATTAINMENT OF THE PARETIAN OPTIMUM 366 David consumee O^x^ or X and of I. Point A lies on indifference curve III of Adas and III* of David. Both Adam and David simultaneously can improve their respective satisfactions by moving to any new point within the shaded area, for by so doing both of them would proceed to higher indifference curves. Suppose that they trade with each other until Adam takes 0ax2 of X and 0ay2 of T, and David takes 0^X2 of X and 0^2 Both of them are now better off than either of them was at point A, for they both have advanced to higher levels of satisfaction, as shown by the fact that the current distribution lies on curves higher than III and III*. Furthermore, this particular distribu tion at point B lies on CC, the contract curve, as well. The significance of the contract curve is now apparent; neither party can leave B without one of them being injured, that is, being forced to a lower indifference curve. Point B, therefore, is the graphic representation of the Pareto optimum. Adam would like to proceed to an indifference curve situated to the right of point B; this would be a higher level of satisfaction for him. David would be made worse off by such a move, since such an action by Adam would put him on a lower indifference curve. This move would violate the Pareto optimising rule which requires that if anyone is to be made better off, no one must be made worse off in consequence. Under this rule, a movement 367 to point D from either A or B would be precluded. The only move from point D which would satisfy the Pareto criterion would be a movement in the direction of the arrow to the contract curve. Once a position on the contract curve has been reached , no further moves can meet the test imposed by the Pareto criterion. The Importance of Market Structure Implicit in the result obtained in Figure 15, are the conditions of pure and perfect competition. Market impurities and imperfections can prevent the attainment of the Paretian optimum. Ironically, efforts designed osten sibly to promote well-being may become a barrier preventing the attainment of the optimum. Heretofore, we have assumed that all consumers faced the same prices. This fact, a condition of pure and perfect competition, can be incor porated into the Edgeworth Box diagram by means of a budget line • Adam and David may never trade directly with each other as was assumed in the previous Edgeworth Box descrip tion of their trading activities. Pure and perfect com petition, however, allow the same optimal result to be achieved; both will arrive at positions on the contract curve. Again, we may juxtapose the diagrams to show that this is true. Figure 16 has been drawn so that all of the X and T 368 Y X Y FIGURE 16 TRADE UNDER CONDITIONS OF PURE AND PERFECT COMPETITION t 369 is accounted for by the consumption of Adam and David, that is, I * Oaxa + Od3^ * = OaFa + 04x4. At point P, their respective indifference curves, A and D, are tangent to the budget line HG and to each other. Point P therefore must be a point on the contract curve, because it is not possi ble for either one of them to improve their position without hurting the other. In the situation depicted in Figure 15, we had no way of knowing which particular position on the contract curve (within the shaded area) would be established. In Figure 16, the particular optimum position is defined by our knowledge of the incomee of Adam and David and the prices of goods X and 7. The allocation of the goods X and 7 between Adam and David is optimal only within the limits of their budgets; point P is a constrained optimum. For all we know, the optimum at P may be such that Adam is not living at all well by having his consumption of X limited to 0axa. Society may, therefore, attempt an action of intended ethical consequence by trying to help Adam increase his consumption of X. It may be decided, upon humanitarian grounds, to assist Adam in the purchase of X by reducing the price of that commodity to him, the taxpayers, as a group, paying the rest of the price for him. Should this course be adopted, consumers will not face identical prices; a requisite of perfect and pure competi tion will have been eliminated. It will now be impossible 370 to follow the Pareto criterion; efficiency will have been sacrificed in an attempt to do "good." Apparently more objectionable is the realization that the individuals involved will be unable to maximize their own satisfactions. In Pigure 17, the price of good X has been made cheaper to Adam as is shown by the lesser slope of his price line. The price differential in X means that it is now impossible for the indifference curves of the two con sumers to become tangent to each other at the point of tangency with the budget lines. Consumers are prevented from bringing their respective marginal rates of substitu tion into equality. The distribution of X and 7 between Adam and David is not as they would like it in an untram- neled economic context. Had the Income redistribution in favor of Adam been paid to him in the form of a sum of money to allocate between X and 7 as he pleased, he would have consumed a different combination of X and 7. The relative price structure would not have been disturbed, and all consumers of X and 7 would have proceeded to attain the Pareto optimum unimpeded by dislocating, economically inefficient "social welfare" measures. Concern for other values. Economic efficiency is, of course, only one of many values. Society may be willing to suffer a misallocation of resources to further other ends. Good 7 may not be considered as socially desirable 371 T Ada* FIGURE 17 TRADE WITH A PRICE DIFFERENTIAL IN ONE GOOD 372 as good X, and, therefore, society nay wish to discourage its consumption. Hence, it is felt to be the more socially desirable course to suffer some economic inefficiency in order to gain a more valued end. It is quite possible and likely, as will be explored in the following chapters, that the interests of individuals as citizens may be something other than the interests of individuals as consumers. The Pareto Optimum, Perfect Competition, and Exhics The types of analyses that we have up to now con sidered have provided little guidance to achieving justice in the distribution of income. They do serve, however, to act as safeguards, to varying degrees, in achieving an end once a distributional program— a welfare function— has been chosen. Normative considerations arising from the Pareto optimum in combination with a distributional criteria do exist, as is indicated by Tjailing C. Eoopmans. If allo cative and full employment efficiency is accepted as the norm for the economy, if it is felt to be the best way to carry out a particular set of distributional criteria, then either perfect competition or a system of price admin istration which will give the results of perfect competition 373 38 ought to be adopted by a community. Our analysis has shown that one of the conditions necessary for the attainment of the Pareto options is the complete uniformity of price to all buyers. This is also a requisite of pure and perfect competition. The pertinency of this fact has been demonstrated by Melvin W. Reder, who has provided a most thorough explanation of how each of seven so-called "marginal conditions of social welfare" is qo lfO fulfilled under conditions of perfect competition. * Attainment by traders of a position on the contract curve under conditions of perfect competition, may lead one to believe that the best route to the maximisation of Pareto welfare is to be found in making the economic order more competitive. Reder, however, emphasizes the absolute ^TJailing C. Koopmans, "Allocation of Resources and the Price System," Three Essays on the State of Economic Science (New York: McGraw-Hill Book Company, Inc., 19^7), PP. 63-6*t. Melvin W. Reder, Studies in the Theory of Welfare Economics (New York: Columbia tJniversity £ress, 19*+?) * pp. 21-2$. ^The seven optima (each of which is accompanied by marginal conditions) listed by Reder are (1) the optimal allocation of products among consumers. (2) the optimal degree of specialisation among firms, (3) the optimal degree of relationship of inputs to output, (4) the optimal relationship of factoral inputs, (5) the optimal direction of production, (6) the optimal allocation of a unit of the time of a factor unit, and (7) the optimum relationship between the present value of a flow of income and the present value of a flow of income in the future. 37* * essentiality of really perfect competition if aaxiaum Pareto welfare is to be attained. Even with pure competi tion, the requirements of perfect knowledge and complete factor mobility being dropped, maximum welfare under the Pareto criterion will not be achieved. Additionally, indivisibilities in the factors of production can prevent the seven marginal and even the so-called "second-order conditions" of social welfare from defining a position of ifl 1^2 maximum welfare. ’ Under perfect competition, the rule of Adam Smith's invisible hand comes to life. Hedonistic utilitarianism appears to offer the promise of uniting efficiency and ethics. The state of economic knowledge at the time of the classlcals was most propitious for the formulation of Jeremy Bentham's "felicific calculus." If all of the ^Ibid., p. ** 6. **2The "first-order" or "marginal" conditions of social welfare are analogous to the first derivative of a function. They are necessary but insufficient to define a position of maximum Pareto welfare. By themselves, they define an extreme position which may be either a maximum or a minimum. The second-order conditions are analogous to the second derivative of a function and are used to determine if an extreme position established by the ful fillment of the seven first-order conditions is a maximum or a minimum. Additionally, some economists, notably J. R. Hicks, speak of the "total conditions" of social wel fare which must be fulfilled in addition to the other two conditions to insure the maximisation of Pareto welfare. The total conditions specif that it must be impossible to cause an improvement, once the other conditions have been fulfilled, by either abandoning the production of an item now produced, or by producing some good or service not currently made. 375 conditions of perfect competition are fulfilled, and if each participant in the economy attempts to maximize his self-interest, the marginal and second-order conditions of maximum welfare will be achieved. Attempts to find dis tributive justice within the untrammeled workings of the competitive economic order have been discussed in the chap ters on the marginal productivity ethicists. Just as those attempts failed to define economic justice, so does the pristine rule of the Pareto optimum fail to yield a guide to the ethically ideal distribution of Income. VI. THE INADEQUACY OP THE DISTRIBUTIONAL CRITERIA SO PAR DEVELOPED Neglecting for the moment the spirited battle between those who believe welfare economics to be norma tive, in part at least, and those who vigorously assert that it is wholly positive, it is intriguing to see what implications of a prescriptive nature, whether for effi ciency or ethics, can be approached using the principle of the Pareto optimum. If prescriptive implications of norma tive content are not derivable, then, at least, the tech nique may be useful for delimiting the boundary Gf there is one) between ethics and efficiency. J **3por a notable discussion of the relationship between equity and efficiency, see Tibor Scitovsky, Welfare 376 The "conflict" movement shown by moving along the contract curve CC in Figure 15 poses most sharply a distri butional problem. In any move along a contract curve, there must be a gainer and a loser in terms of self- assessment . When this situation is presented, the issue of justice becomes acute. Indeed, this is the first time in our discussion of the Pareto optimum that justice has been an issue. Prior to the introduction of the ethical issue, we considered a movement from a point such as A to point B. A movement from point A to point B will cause Adam and David to assert that they are better off in con sequence of the move, inasmuch as each has advanced to a higher contour on their own particular utility maps. To repeat the analysis made in conjunction with the introduc tion of the Edgeworth Box, in moving from A to B, Adam trades *2*1 quantity of X goods with David in exchange for 7172 quantity of Y goods. At the completion of the exchange Adam has less X goods and more Y goods, and David has less Y goods and more X goods. By simply trading existing goods, Adam and David have experienced an increase in their respective satisfactions. The distribution of X goods and Y goods at point A is ins-f-fig lent- Adam has more X goods and Competition— the Economics of a Fully Employed Economy (.Chicagoi Richard D. Irwin, Inc.. 1951). Scitovsky's woFk has served as a background for this discussion. 377 than he wants In comparison with T goods of which he would like more. David has more Y goods than he cares to have relative to X goods, and, therefore, he would like to acquire more of the latter. A simple reallocation of goods between the parties can make them both feel better, and if both of them feel better, the totality of satisfaction in our two-man economy must have increased. There is some perhaps minor ethical significance in this observation Itself. It is clear that a movement from point A to a point within the shaded area can make the traders gainers as they proceed to the contract curve. Here, analysis can help us put in proper perspective the question of whether trade is bad or, at the least, sterile. Simple trade, without any increase in the production of X goods or Y goods has served to make Adam and David feel more satisfied. Hence, actions taken to facilitate the course of trade are not sterile or burdensome, but may serve to increase pleasure or satisfaction. A movement from point A to point E or point G falls within the scope of the Pareto criterion which demands only that no one be made worse off if someone else is made better off. Thus, a movement from A to E will help David, and although it will not make Adam feel better off, it will not worsen his position. This follows, since at E, David advances to curve IT* while Adam remains on curve III. 378 Similarly, a movement from A to G helps Adam by putting him on a higher Indifference curve without placing David on a lower curve• Seemingly, we have established the proposition that economists need have no hesitancy in recommending a move ment £o the contract curve within the confines of the inter section of the indifference curves when the initial posi tion of the traders lies off the curve. This is apparently a question of efficiency on which economists may supposedly and properly speak. Thus economists supposedly are quali fied to recommend a movement from A to B and from D to F. Conflict movements— movements along the contract curve— have been declared to be beyond the province of economists. Economists are precluded from assessing a movement from B to P or its reverse. Movements along the contract curve violate the rule of the Pareto criterion; they inescapably involve making some one worse off to improve the position of another. The question arises of what is particularly recom mendatory in the prescription that if the traders occupy positions off the contract curve, they can better them selves by moving to the curve. An economist making this statement is saying nothing more than that there is a mis- allocatlon problem. The distribution of goods among con sumers is inefficient. The "ought” in saying that Adam 379 and David "ought" to move from A to B is not an ethical "ought," or if it is, the ethical content may be regarded Mf as widely accepted or entirely innocuous. The inapplicability of the Pareto criterion to ques tions bearing potentially serious ethical content is shown in the absence of any clear direction of the course to be taken upon leaving A. The Pareto criterion is limitational and negative. First, if a move is undertaken, it bids us keep within the graphical limits imposed by curves III and III*. When faced with the alternatives of moving from A to either E or G, economists, on the basis of the Pareto criterion, can do nothing save state that the distribution is inefficient. This latter service is all that economists are performing when they state that the distribution should be at some point lying between E and G on the contract curve. The negative aspect of the Pareto criterion is that it precludes moves such as those from A to D and from A to H. Moving from A to either D or H would benefit Adam at the expense of David. The Pareto criterion condemns move ments which make Mvnne worse off, no matter how many people are made better off. According to the Pareto rule, point B is preferable to point A, and point F is preferable M i. The value judgment involved here is that the preference of consumers should count in determining the allocation of goods and services among them. 380 to point D. The Pareto criterion allows economists to say that distributions occurring on the contract curve are equally efficient, a statement which might lead us to the possible misleading conclusion that B is indifferent to F. On the basis of the Pareto criterion, we cannot infer from the preceding reasoning that F is therefore superior to A and that B is necessarily superior to 1), Point F cannot be adjudged superior to point A, although F lies on the contract curve and A does not, because the only movements approved by the Pareto rule lie within the shaded area bounded by curves III and III' • Points A and F cannot be compared under the Pareto rule, other than to state that a movement from A to F is ruled out Inasmuch as one party (David) will be made worse off in consequence of the other's (Adam's) improvement. Similar reasoning applies in compar ing points B and D. There is one way in which we might meaningfully com pare points A and D without adding additional (or other) criteria. It can be seen from the location of the points in the diagram, that point D is closer to F than A is to B. Inasmuch as D lies closer to the contract curve than does A, the former point represents a more satisfactozy (although unoptimal) resolution of the trading problem between Adam and David than does the situation depicted at A. Movements to the contract curve are trading movements which allow 381 both parties to improve themselves or at least allow one party to Improve himself without hurting the other. As the parties move closer to the contract curve, the more fully is the principle fulfilled that consumers ought to get what they want. Therefore, on this limited basis, we are able to say D is in a sense "superior" to A, in that lying closer to the contract curve, it shows a more efficient distribution of goods X and 7 between Adam and David than does the distribution at A. It is important to bear in mind that we have said nothing in all this about the .justice of the distribution at points A, B, D, or F. The value judgment implicit in the above passage is that within the limits of their income, consumers should get what they want. The focus of this dissertation is, however, what should be the division of income between persons. It is obvious that to decide what ought to be the distribution of X and 7 between Adam and David would require criteria of considerably greater ethi cal consequence than the rule of the Pareto optimum. The lade of guidance for policy matters provided by the Pareto rule is clearly shown by referring again to the movement from A to either E or G. The Pareto criterion declares both G and E to be superior to A, inasmuch as a movement to either point increases the satisfaction of one party without lessening the satisfaction of the other. The 382 Pareto rule, therefore, declares the distribution at G to be indifferent to the distribution at E. If the initial position is A, what recommendation can be made? Let us consider a move from A to G. Adam is benefited by moving to a higher contour; David is not hurt, for he remains on the same indifference curve, but he receives no benefit at all from the move. Why should he consent to the move? Why should he not demand adherence to the status q u o , since the move, as far as he is concerned, preserves his initial status? Why should not Adam be expected to compensate David from the gain accruing to him in moving from curve III to curve IT in order to make the move worth-while to David? We are faced with the problem of how to effect an "improvement." The Pareto criterion tells us that trading can improve the situation in that it is possible to make both individuals feel that they are better off, or that at the least, it is possible to improve some without hurting the rest, but it does nothing to remove the impasse which may arise in trying to decide at what point on the portion of CC lying within the shaded area the final distribution should be made. The need is for a decision-maker provided with a set of decisional criteria of considerably greater strength than the rule of the Pareto optimum. Without more guide lines than the one provided so far, we have no basis upon 383 which to judge the desirability of a distribution at B as contrasted with one at F. The distribution at B nay be unjust, that at F may comport with perfect justice. The problem is one that Paretian economic analysis cannot answer. Let us assume that we have a decision-maker— elec torate, parliament, tyrant, priest, or benevolent despot— who determines that distribution should be made on the basis of "need," and that Adam's needs are greater than those of David. It may then be said that the distribution at F is superior to that at B. Suppose that after a redistribution of income designed to place Adam on a higher indifference contour, the distribution is at D. On ethical grounds, D is superior to A or B inasmuch as Adam's satisfaction is greater at D than at the other two lower-lying points. The efficiency problem is again involved as the distribution at D does not occur on the contract curve. This suggests that once the apportionment of income is made, the parties should be left to work out the disposition of goods between themselves. We must assume that Adam and David are rational. Distribu tion at F would be ruled out inasmuch as this would make Adam worse off. However, it is possible for Adam to improve his position still more by trading with David such that the final distribution is at H. Adam has improved his own 38*f position over that afforded to him by the just distribution of income; David's position has not been worsened; and the distribution occurs on the contract curve • Assuming a Just Distribution The Pareto analysis is helpful if we have or can assume a just distribution of income. If a just distribu- tion exists at B, that is if B lies on the budget line of the two traders, then any other position on the budget line is not one of maximum Pareto welfare. At any point other than B on the budget line, the consumers will have slipped to lower indifference curves. The Pareto criterion can serve as a guardrail to help to prevent traders who have once attained an appropriate position from slipping to an inefficient although just distribution of goods and ser vices. The assumption of the above paragraph has not solved the issue of justice in distribution, and its consideration is the chief inquiry of this dissertation. We have noted that we need a decision-maker and set of decisional cri teria. These criteria have come to be known as the "social welfare function." In the following chapters, this disser tation will examine attempts to use a social welfare func tion as well as attempts to avoid its use. At the conclusion of this chapter, the possibility of interpersonal comparisons, forever lurking on the 385 periphery, seems ready to enter again to force either the abandonment of welfare economics as a positive study or the frank admission of normative considerations into the body of doctrine. This was the problem faced by Hoy Harrod in 1938, when he wrote: Consider the repeal of the Corn Laws. This tended to reduce the value of a specific factor of production— land. It can no doubt be shown that the gain to the community as a whole exceeded the loss to the landlords— but only if individuals are treated in some sense as equals. Otherwise how can the loss to some— and that there was a loss can hardly be denied— be compared with the general gain? If the incomparability of utility to different individuals is strictly pressed, not only are the prescriptions of the welfare school ruled out, but all prescriptions whatever.^5 ** %U>y Harrod, "Scope and Method of Economics," Economic Journal. XLVTII (September, 1938), 396-397. CHAPTER DC ATTEMPTS TO PRESERVE A POSITIVE SCIENCE — COMPENSATION PRINCIPLES I. AVOIDING INTERPERSONAL COMPARISONS A frank confrontation with the issue of justice was avoided for awhile by the development of the principle of compensation. In reply to the statement of Roy Harrod, quoted at the end of the immediately preceding chapter, Nicholas Ealdor attempted to show that policy prescriptions such as the repeal of the Com Laws are properly within the domain of welfare economics as a positive study, for the reason that interpersonal comparisons are not Involved at all.1 Fully joining himself to the Robbins position, Ealdor asserts that welfare economics can properly appraise the repeal of the Corn Laws or any similar policy measure without resorting to interpersonal comparisons. The repeal of the Com Laws, he says, had three effects: The price of com was lowered, so that everyone who bought com had a 1Nicholas Ealdor, "Welfare Propositions of Economics and Interpersonal Comparisons of Utility," Economic Jmi-mai- XLH (September, 1939), 9*9-552. 386 387 higher real income* The landlords, of course, suffered a lower money income resulting from the drop in the price of com. At the same time, the money incomes of others (the Importers of com, for example) rose, with the final result that the aggregate of money Income remained the same. The totality of these effects makes it possible for the gainers to compensate the losers, while at the same time, society enjoys a net gain. The government can impose a tax on those who have received an enhanced money income, eliminat ing their windfall. By means of a transfer payment, made out of the proceeds of the tax, the government can compen sate those whose money incomes have fallen. Thus, no one is hurt. As consumers of com, everybody is benefited. Not a single interpersonal comparison has to be or is made. In Kaldor's words: . . . the economists' case for policy is quite unaffected by the question of the comparability of individual satisfactions; since in all cases it is possible to make everybody better off than before, or atany rate to make some people better off without making anybody worse off.2 Thus, the fundamental proposition of the Pareto optimum, grounded in Intrapersonal comparisons, is quite enough to continue the validity of the economists' pronouncements on matters of public policy. Kaldor feels that his argument 2Ibid.. p. 550 388 follows Pigou's division of welfare economics into two parts: production, on which the economist may expound, and distribution, upon which the economist qua economist is 3 precluded from saying anything. Regardless of the supposed adequacy of the Kaldor compensation principle at the time it was propounded, or its state in the body of economic doctrine at the present time, it should be clearly understood that Kaldor was, at no time, confusing question of justice with those of effi ciency. Many of the propositions of welfare economics appear to have definite ethical appeal, unless it is kept in mind that the basic question of income distribution is either ignored or taken as a datum. In this regard, kaldor notes: tt. . • it is quite impossible to decide on economic grounds what particular pattern of income-distribution k maximizes social welfare." Kaldor was subsequently joined by J. R. Hicks in his formulation of the compensation principle, and their con tribution in this area to the body of economic doctrine has come to be known as the "Kaldor-Hicks criterion." Hicks's argument is substantially the same as that of Kaldor, but a most interesting aspect of his discussion is the implicit, and perhaps unintended, recognition of the need for a 3Ibid.. p. 551 ^Ibid. 389 "welfare function" In a true economics of welfare* For example, he says: Positive economics can be, and ought to be the same for all men; one*8 welfare economics will Inevitably be different according as one is a liberal or a socialist, a nationalist or an c internationalist, a Christian raid or a pagan. II. COMPENSATION AND JUSTICE Mr. Hides's thinking, as expressed in his writing on the compensation principle, has some Implications for dis tributive justice. As the simple maximization of aggregate utility was discarded by the Pareto criterion, it being recognized that a gain of one person should not be at the expense of another, so now the Pareto criterion requires bolstering if it too is not to founder upon the seas of interpersonal comparisons. It is one thing to speak of changes which will help so me one without hurting anyone else; it is quite another thing to encounter the possibility of such nicely balanced changes in the real world. The absence of such precise adjustments in everyday life suggests that if justice is to be preserved, practically no policy change ever would be possible. Hicks addressed himself to this problem and concluded that the Pareto optimum is still a valuable <J. R. Hicks, "The Foundations of Welfare Economics," Economic Journal. XL IX (December, 1939), 696. 390 criterion. Under the Hicksian "amendment," however, policy changes must he classified as "permitted" or ’ honpermitted.'^ A permitted reorganization is one in which the total bene fit growing out of a policy change is large enough to allow those hurt to be compensated by those benefited, a net advance in welfare remaining. The Hicks compensation prin ciple is pertinent to discussion of the problem of automa tion. A portion of the total benefit derived from automa tion may he recaptured and used to help those who have individually suffered from technological advance. The use of the compensation principle helps society to profit to some extent from technological advance without attendant injustices being suffered by those, who through no moral fault which can be imputed to them, have suffered from the advance made by the community. The principle of justice in the Hicksian criterion is that the maximization of aggregate utility should not be allowed to perpetuate individual injustices. The prin ciple of progress in the same idea is that aggregate economic welfare and technical advance should not be stifled by the inability to render justice for lack of being able to make some appropriate compensatory adjust ment. 6Ibid., p. 706. 391 The Hicksian compensation principle itself forms a welfare criterion. So long as it is possible to make a change which will increase aggregate satisfaction, helping some and harming others, welfare may be increased. The Pareto criterion could conceivably limit policy changes to insignificant magnitudes since it requires that no one be hurt. Under the Hicksian rule, the door appears to be open to injustice. Injustice is defeated, however, by the requirement that those hurt must be remunerated, so that they are fully compensated, that is, those injured are "made whole." A Practical Example--The Trade Expansion Act of 1962 The Trade Expansion Act of 1962 provides us with a practical example of the compensation principle in action. In general, the provisions of the Act grant the President of the United States broad powers to work with the European Common Market in the common reduction or elimination of tariff8 on goods according to certain classifications. These reductions, which are to be made by reciprocal nego tiations, obviously will cause some persons to be better off and others to be worse off. Employers and their employees who have been benefited by tariff protection are likely to suffer while consumers of formerly protected goods are likely to find their real incomes increased. To 392 compensate those adversely affected by the removal of tariff protection, the act calls for "trade adjustment assistance." Workers whose Jobs are eliminated by the increased competition are to be provided with retraining, relocation allowances, and a contribution to living expen ses for a period of about eighteen months. Business firms faced with difficulties arising from tariff reductions are eligible for tax relief as well as loans and technical assistance to enable them to reconstitute themselves for 7 business in unprotected markets. working example of the type of compensation mentioned only hypothetically in connection with the repeal of the Com Laws. In the present act, consumers of formerly protected goods are benefited at the expense of those who previously enjoyed a protected market position. By taxation and gov ernment spending, a portion of the benefits accruing to consumers can be disseminated among those harmed with a hopeful increase in the general level of satisfaction. Ethics— Evaded. Avoided, or Confronted? In the final analysis, Hicks removes the operation of his criterion from the realm of ethics. Ultimately, the The Trade Expansion Act thus provides us with a 7 Problems nnrsoa 393 Hicksian criterion is a test of the economic desirability of a policy change. Hicks does not specify that compensation mast be paid. In fact, he says, society may think it better not to pay any compensation at all. He has no quarrel with the judgment of society whatever it may Q be. The grounds for making the decision to pay or not to pay are, of course, ethical. The "test” aspect of the Hicksian criterion arises from its author's insistence that the increase in aggregate welfare flowing from a policy change be large enough to allow sufficient recompense to be paid to those injured with something left over, so that the change, once accomplished, will be a net gain. Hegardless of its position in the body of welfare economics, the Hicksian compensation principle is inter esting for its no doubt unintended application to economic justice. First of all, it recognizes the virtual impossi bility of changes in a vacuum. A change that benefits one person on one side of the market may hurt another person on the other side. It is perfectly feasible to excuse the injury by saying that society benefits so greatly by the change that considerations of personal disadvantage are precluded. This is an ethic quite typical of a war-time society. Most civilised societies, when they are at peace, ®Hicks, "The Foundations of Welfare Economics," P. 711. would not subscribe to this ethic* The Hicksian principle is probably in the tradition of centuries of western ethi cal thought; for every injury, there ought to be a remedy. While Hicks, himself, does not argue unconditionally that compensation must be paid to the loser, he most emphatically argues that the change producing the injury must create enough good to permit compensation to be paid. If it were not for the notion that an injured person ought to be com pensated, which is surely a principle of justice, it is difficult to explain how the Hicksian proposition would ever have been proffered in the first instance. The Hicksian criterion may seem to open the way for welfare economics to say something meaningful about eco nomic justice. Unfortunately, it opens the door too wide and admits some possibilities for defeating a desirable change altogether— an act of injustice in itself. The Hicksian criterion is open to the same charge as that usually leveled at the proponents of the marginal produc tivity school of distributive justice, namely that it defends the status quo. The right of vested interests is protected. Perhaps the parties which might be injured by the adoption of a new economic policy might find it advan tageous to pay those who would benefit from the change a compensatory payment sufficient to keep the latter from pressing for the change. This would mean that the public at large might not value the change as much as the poten tial losers value their entrenched position. Furthermore, it most clearly shows that a simple income distribution could increase welfare without any actual economic policy change taking place. Here, the satisfaction of the poten tial losers is increased by staving off the change, and the satisfaction of the potential gainers is increased by receiving a bribe. The distribution of income must be inefficient. To be sure that an economic policy change will produce an unambiguous improvement in the level of satisfaction, we must first be sure that a simple redistri bution of income would not, by itself, produce an increase in utility. The Scitovsky Criterion As Hicks has addressed himself to the problem of the changes in the satisfactions of individuals arising from policy changes, so does Tibor Scitovsky address himself to the problems of the changes in the total quantity of produc tion which may accompany the changes in income distribution, o flowing from economic policy changes. Scitovsky points out that a policy change is not only likely to redistribute income, it is likely to change ^Tibor Scitovsky, "A Note on Welfare Propositions in Economics," Review of Economic Studies. IX (November, 19*+1)» 77-88. 396 the size of the total income itself* Moreover, he contends that the most important impact of a policy change is likely to flow from changes in the composition of the output* For example, a policy change might increase total physical out* put by increasing the production of both X and Y* Problems arise when production of only one increases and the other decreases. In the example used by Scitovsky to illustrate this latter situation, he adds the further condition that X is consumed by the rich and Y by the poor. If the produc tion of X is increased and Y decreased, even though a measure such as the gross national produce might show an increase, aggregate welfare may be seriously reduced. The poor, however, could be compensated by the rich for their loss of Y, so that both rich and poor would be better off in consequence of the change. If the consumption patterns were reversed, however, that is, the poor consume X and the rich Y, the gain of the poor in money terms would not be enough to compensate the rich, so that any attempt to restore the initial distribution of welfare through income redistribution would bring about a net loss for the entire community. It is relevant to note here Hla pint’s distinction between the "real" aspects of the classical welfare 10Ibid.* p. 86 397 economics and the "subjective” aspects of the nev welfare economics. *tyint points out that the classical economists, working well before the development of the marginal or "subjective” analysis, considered economic welfare at a physical level. The classicals, says ttyint, assumed that the quantities of satisfactions of given wants are approxi mately proportional to quantities of physical products. Therefore, they held that increasing the quantity and phys ical productivity of resources was the most significant means of increasing the level of economic welfare Thus classical welfare economics (which has not been explicitly considered in this dissertation) would recognize the desir ability of changes bringing about the largest physical output of goods. At the subjective level of the new welfare economics^ a dilemma is left unresolved by the Kaldor-Hicks criterion when economists study those changes causing alterations in the magnitude and composition of physical production as well as in the distribution of income. This dilemma was attacked by Scitovsky using his so-called "double cri terion." The double criterion is not something other than the Kaldor-Hicks test; it is merely the original proposi tion applied in two directions. The first part of the ^Hla Myint, Theories of Welfare Boonnmi (New York; Augustus M. Kelley, Bookseller, 1962), pp. xii, rf9“93. 396 Scitovsky criterion requires that it must be possible to redistribute income after a policy change in such a way as to make everybody better off than they were initially. The second test requires the ascertainment of whether an increase in welfare, as judged by each individual, is possible by a simple redistribution of income. If the latter is impossible of attainment, and the former is open, society should proceed with the change, as everyone will be made better off by it. On the other hand, if the latter is now possible and the former impossible, the move to a new position would represent a deterioration in welfare. If both are concurrently possible or impossi ble, the matter is removed from the realm of balancing efficiency, and the economist qua economist has nothing 12 that he may properly say by way of prescription. Graphical Representation of Compensation Principles The comparison and discussion of compensation prin ciples is facilitated by the use of a utility possibility curve. The utility possibility curve is analogous to the production possibility curve, and is derived, in part, from it. Instead of the quantities of two goods which may be produced by an econoioy being measured along the two axes, the utilities of two different individuals are ■^scitovsky, op. cit.. pp. 86-87. 399 measured thereon. The problem of Interpersonal comparisons does not enter in, because the ordinal welfare of one of the individuals is measured on any arbitrary scale. The utility scale of the other individual (assuming the simple two-person situation) may be described in terms of the first by redistributing the goods involved to make the other party as well off as possible. In Figure 18, curve UU is the utility possibility curve for the community of Adam and David. Any gain in Adam* s utility— represented by a downward movement along the curve— must necessarily be accompanied by a loss in David's utility. A reverse movement along UU produces an opposite situation. The utility possibility curve says nothing about the most desirable state of economic welfare. It merely shows, within the limits of the technical requirements of production, the maximm total welfare possibilities open to a community. Should a point such as P lie within the utility space bounded by the axes and UU, the community would be behaving inefficiently. A point within this area would not lie on the contract curve, and, therefore, meas ures should be taken to correct a maldistribution which is keeping at least one person and perhaps all parties worse off than they need to be. Levels of total satisfaction greater than that described by the curve (lying outside UU) *frOO U’ u 0 u, Adam* FIGURE 18 COMPENSATION PAYMENTS utility *+01 are not open to the economy under its present technological or resource patterns* Expanded maximum total levels of satisfaction depend upon the physical relationships of pro duction which, if augmented, would be shown by a new pro duction possibility curve encompassing a larger production space* The new production possibility curve would, in turn, require the delineation of a new utility possibility curve. Evidence of the Positive State of Welfare Economics The utility possibility curve offers convincing graphic evidence of the thesis that positions of ideal dis tribution cannot be deduced from the propositions of wel fare economics* In the matter of distributive Justice between Adam and David, we have no criteria to establish whether point Z, for example, is ethically superior or inferior to any other point lying along UU. We might decide that it would be desirable (for whatever reason) to undertake measures which would increase Adam's utility, thereby unavoidably reducing David's satis faction* This action is shown 'by the movement from Z to Z\ Adam has gained UaU£ in satisfaction, while David has lost U<jU£* Under the Pareto criterion, the change contemplated would be ruled out, because only those changes that improve one person with no harm to another are permissible, that is, once a position such as Z is attained on UU, the Pareto criterion cannot judge any movements along the curve, for *+02 attainment of the Pareto optimum is represented by all points lying on the curve. The introduction of the compensation principle allows us to ascertain if the gain to one party would be sufficient to compensate the other for his loss and leave the gainer with some benefit. If so, the Kaldor-Hicks criterion is satisfied, and the move seemingly comports with the requirements of Justice in that David has been compensated and Adam has gained. If David could not be fully compensated out of Adam's gain, the change would be ruled out. Although the movement may comport with elemen tal conceptions of justice in that competing interests are balanced and satisfied, we have no information permitting us to assess the justice of the initial position. Hence, while David may not have fared badly from the change, we cannot conclude that the ultimate cause of justice has been served. Indeed, assuming Adam's interests to be badly served at Z, the just course of action may be to redistrib ute income such that point Z' is attained and give no com pensation to David who, for all we know, may be a most detestable exploiter. We ahall now consider a movement from a point such as P to curve UU, as shown in Figure 18. Point P is not a point of maximum attainable welfare, in that it does not lie on the utility possibility curve. Therefore, the k03 economist can legitimately (professionally) recommend a movement to a point on the utility possibility curve, since any point inside the curve represents an inefficient dis tribution. The Pareto criterion enables the economist to narrow the scope of his recommendation further, namely that the movement from P to UU be confined to the segment ZZ *. Between points Z and Z*, it is possible to make everyone better off. At point Z or point Z*, it is possible to make one party better off without making the other worse off* At any point outside segment ZZ*, say R, it is impossible for the economist to say anything on the basis of the Pareto criterion, inasmuch as an improvement in the satis faction of any one party will be accompanied by the diminu tion in the utility of the other. Although the parties, on the basis of the intrapersonal comparisons made by each may be amenable to any movement from P to a point within the segment ZZ', the particular point within ZZ* cannot be fixed by Paretian economic criteria. Moreover, the move ment from P to any point falling along ZZ* may not be a just move; justice might favor a move to R which would involve a great addition to David's satisfaction and the loss of some utility by Adam. III. BROADENING THE SCOPE OP PERMISSIBLE RECOMMENDATIONS The Kaldor-Hicks criterion permits economists to traverse a step beyond the limitations of the preceding analysis; they may unhesitatingly prescribe an alteration in the exchange relationship causing a move to the contract curve and, hence, to UU, even though it seems that one of the parties must be hurt. The recommendation is subject to the important qualification that the change in the exchange relationship makes a redistribution of income possible, so that both parties may be in an improved situation upon the full completion of the transaction. Thus in Figure 18, suppose that point P lies on a second utility possibility curve (represented by the dashed lines) all of the points of which lie under UU. A movement from P to R is ruled out by the Pareto criterion in that Adam is made worse off. Under the Kaldor-Hicks criterion, the change is permissible in that the increase in David's utility makes it possible for him profitably to compensate Adam by a redistribution such that the parties move from R to Q at which both of them are better off than either of them was at P« There is no way in which Adam (the potential loser) could prevail upon David (the potential gainer) to abstain from the change, inasmuch as there is no way in which Adam could make David as well off as he would be at Q without Adam bo 5 suffering a serious loss in his own satisfaction. Inasmuch as the utility possibility curve is derived* in part* from the production possibility curve, a change in the latter will be reflected in a change in the former. Such a change, we shall assume, is shown by the new curve U'U' in Figure 19. Consider point F in Figure 19 which lies below U'U' and therefore bears the same relationship to this curve as P does to UU in Figure 18. Under the reasoning of the Kaldor-Hicks criterion, developed in the preceding example, a change in productive relationships causing a move to point G lying off U'U* could be endorsed, even though Adam would suffer a severe loss in satisfaction. David's gain in utility is so great that he can overcompensate Adam for his loss by moving to point H at which both are better off than they were at F. This move, uniike that described in connection with Figure 18 is, however, ambiguous. The reverse movement from G to F is likewise an improvement. In moving from G to F, David's loss of satisfaction could be over compensated by Adam's gain in that they could move along UU from F to I at which both would be better off than they were at G. There is an obvious logical inconsistency here, for the statements imply that moving from F to G is an improve ment and that moving from G to F is also an improvement. *+06 U* U U* u. 0 PIGUBE 19 COMPENSATION PAYMENTS UNDER AMBIGUOUS CONDITIONS *f07 The Inconsistency arises when the policy change has involved a change in the production function such as to cause the utility possibility curves UU and U'U* to inter sect* The Scitovaky criterion eliminated the ambiguity arising from intersecting utility possibility curves. Eliminating Ambiguity In the movement from P to G in Figure 19, the first application of the Kaldor-Hicks criterion is consonant with the belief that the move constitutes an improvement* Applying the criterion to the reverse movement, the result ant conformity to the test for improvement does not add up to an impasse, but rather, under the Scltovsky rule, means that the projected move is not an improvement at all* The Scltovsky criterion is satisfied only when the application of the Kaldor-Hicks test to the reversal of the movement does not indicate an improvement. From a consideration of Figure 199 it is apparent that Adam could "bribe" David to forego the move from F to G, Adam could transfer income to David thereby moving along UU from F to I at which both would be better off than they would be at G. Similarly if G is the initial point, David would find it to his advan tage to forestall a movement to F by transferring income to Adam until H is reached at which both would be better off than they would be at F. In either case, moving from F to G or from G to F, a simple redistribution of income would bOS obviate the proposed policy changes* Next, let us consider a change involving a move from G to J, Again, this move is ruled out by the Pareto cri terion in that Adam is hurt by David's gain* The change, however, makes it possible for David to overcompensate Adam and retain some advantage for himself, so that both are better off at I than they were at G. In this case, Adam cannolr bribe David to forego the change; thus the Scitovsky rule is satisfied; the change is an unambiguous improvement, and under the criteria so far developed may be recommended by economists. If a policy change makes one party better off at the expense of another, the change may be recommended if an income redistribution following the change from the gainer to the loser causes both parties to be better off than they were before the technical adjustment in production. In summary, then, the Scitovaky criterion provides that no policy change should be made which, under all possible dis tributions of income made after the change, would leave anyone worse off than before the change. The thinking involved in these propositions makes it possible, on an analytical basis, to endorse changes in production which may cause unemployment, if the gain to society is great enough such that the unemployed may he compensated in such a way that both the (initially) unem ployed and society are better off than they were before the *f09 change in production. Such compensation might take the form of education, retraining, relocation, pensions, and subsidies or any combination of these and other compensa tory devices. Let us reconsider the type of recommendations possi ble under the two criteria which have been developed up to this point. If Adam and David start from G in Figure 19* a policy change bringing them to F would improve Adam*s situation and worsen that of David. A simple redistribu tion of satisfaction from David to Adam could bring them to point H at which both would be better off than if the pol icy change sent them to F. If the two parties were initially at F, a redistribution bringing them to I at which they would both be better off than if they were placed at G. Thus, although we have said that I is superior to G when starting from F, and that H is superior to F when starting from G, we can say nothing about I as compared with H. None of the criteria so far considered can compare I with H. It would appear that we have come to the limit of the recommendations possible under a wertfrei study, and that if we are to compare I with H, it is now unavoidably necessary to incorporate ethical or value criteria into our discussion. IV. POLICY IMPLICATIONS OP THE DESCRIBED METHODOLOGY 1+10 The Scltovsky rule Is a powerful instrument favoring the status q u o. Application of the rule conceivably could suppress the forces of Industrialization and the breaking down of severe inequality in income distribution as we have seen happen in the progress of Western civilization. Cer tainly, the reorganization known as the Industrial Revolu tion decreased the satisfactions of the English landed gentry, and temporarily, albeit severely, the utility of the English yeomanry, while, at the same time, the utility of members of the entrepreneurial class was much enhanced. Yet the offended gentry and yeomanry were not compensated, at least not immediately or directly, for their losses. Furthermore, the compensation principles do not require that compensation actually be carried out. All that is required is that the possibility of compensating the losers exists. This aspect of the compensation approach has been severely criticized by J. M. Henderson and R. E. Quandt. They assert that once a change which satisfies the compen sation criteria has been carried out, the actual redistri bution following the change may not compensate the losers. Moreover, the losers might have blocked the change (by paying the potential gainers to forego it) if they had known previously that they were going to be undercompensated. **11 Henderson and Quandt argue: Under these circumstances it is not legitimate to say that the fulfillment of the Scltovsky cri terion implies that state B [the attained state]_ - is socially preferable to A [the initial state^ The use of the phrase "socially acceptable" raises the problem of value judgments. As Henderson and Quandt note, there is no way of telling if one state is socially 1*+ preferable to another without value judgments. In the light of some value judgment, a change might be deemed desirable whether or not compensation could or should be paid. Murray N. Rothbard denies that compensation ever could be carried out.^ Rothbard contends that the utility scale of everyone affected by the change would have to be investigated, but that it is Impossible to find out what has happened to anyone's utility scale. Potentialities of a Dynamic Approach At this point, we may well wonder what the welfare economics so far considered has to say that really matters. 3James M. Henderson and Richard E. Quandt, Micro economic Theory— A Mathematical Approach (New York* Mcdraw- Hill Book Company, Inc •, 1958) , pp. 219*220. llfIbid. ''Murray N. Rothbard, "Toward a Reconstruction of Utility and Welfare Economics," On freedom and Free Enter prise . ed. Mary H. Sennhols (Princeton, kew Jersey: I). Yan Nostrand Company, Inc., 1956) * PP. 2*fr6-2*f7. Vl2 It seems that Robert E. Baldwin's comment on the regard of the profession for welfare economics Is likely quite accurate: "In current discussions of economics, one seldom hears a kind word for welfare economicsAlthough the many criteria, rules, and scrupulous avoidance of inter personal comparisons have been necessary to keep the study free of the very likely pontifications of economists, nevertheless as Baldwin continues: Successive qualifications and retrenchments made in the field seem to have left only an idle play thing— useful perhaps for learning certain general equilibrium relationships but little e l s e .- * - 7 Possibly there is some partial salvation for welfare economics in the addition of a dynamic concept to the analysis. Perhaps by considering the impact of a policy change on welfare over time, we may be able to loose the study from the strictures of the Scltovsky criterion. For example, over time the welfare of all Englishmen may have very well been increased by the forces unleashed by the Industrial Revolution. We are on thin ground, however, for we may readily become enmeshed in the most tenuous sort of interpersonal comparisons— those made between members of i different generations. -^Robert E. Baldwin, "A Comparison of Welfare Cri teria," Review of Economic Studies. XXI, #2 (1953~5l f), 161. 17Ibid. M.3 Paul Streeten has pointed out that the compensation argument has been defended on the grounds that although a change might make matters worse immediately, in the long 18 run, the effect of a change could be beneficial to all. The most notable protagonist of the time lag argu ment is J. R. Hicks who notes that changes desirable in the long run might not come within the scope of the compensa tion principle because losers could not, in the short run, be adequately compensated for their loss of satisfactions. He thus argues that it is quite possible that the (worth while) change should not be foregone simply because compen sation cannot be properly secured for those harmed in the initially givefl time period. He suggests: , , , although we could not say that all the inhabi tants of [the] community would be necessarily better off than they would have been if the community had been organized on some different principle, never theless there would be a strong probability that almost all of them would be better off after the lapse of a sufficient length of tlme.1^ The position of the adherents to the long-run thesis can only be a belief. Perfect randomness of benefits and losses is essential to this argument, for without the ran dom distribution of gains and losses over time, the random 18 Paul Streeten, Appendix to Grunnar Hvrdal, The Political Element in the Development of Economic Thought, trans. Paul Streeten (Cambridge: flarvard University Press, 195*0, p. 215. fi. Hicks, nThe Rehabilitation of Consumers* Sur plus ," The Review of Economic Studies. VIII(Feb., 19**1), 111. U-lb distribution of gains and losses over time, the impact of policy changes is likely to result in injustices. Even if the injustices are imagined, the aggrieved feelings of those distressed by economic changes may be forceful enough to prevent the making of further desirable adjustments. Although the long-run argument may be perfectly valid, it is most difficult, even with the most Olympian detachment, to compare the losses of one generation against the gains of another. Parents, generally, are often quite willing to make onerous sacrifices for their children; it is ques tionable, however, how great a sacrifice they are prepared to make for their children's children; it is quite doubtful that any parent is prepared to undergo much of a detriment for the increased happiness of someone else's children's children. The basic stumbling block of the long-run argument is conveniently summed up in the over-quoted aphorism com monly attributed to the late Lord Keynes that Hin the long run, we are all dead." Bu-ndinp "lewer" Hew Welfare Economics After a detour into the implications raised by the various criteria for compensation, we are again faced by the problem of how meaningful are the precepts of welfare economics. Welfare economics seem unable to fulfill the promise which one might hope for at the beginning of a study of the discipline. As Streeten has noted, the nev welfare economics is not satisfactory because it states too much and too little. It states too little, he says, because income distribution is not considered, and it states too much because not all of the changes it may advocate are 20 Improvements. Since income distribution or, more precisely, the justice of it, is the subject of inquiry for this study, we may raise the question if this exploration of welfare economics has brought us along to any point at which we may suitably introduce the concept of justice into the discussion. One useful aspect of welfare economics for this study has been asserted from time to time in this chapter as a sub-theme; we have contended that welfare economics serves to clarify certain matters. It acts to separate seeming injustices from simple malfunctioning8 of the economic system. It shows how cooperation in the so-called competitive economic order can promote the good of all, defeating the argument of those who profess to find evil in trade, because they believe one must necessarily gain at the expense of another. It serves to bring dis cipline and order to thoughts on economic reorganization, helping to purge reformist thought of the pious platitudes 20 Streeten, op. cit.. p. 210 *fl6 of reformers, whose arguments rather than showing compas sion for the masses and a devotion to the cause of justice, often merely betrays a psychological burden of guilt, relief from which is sought by a determination to do "good" at all costs. The performance of the tasks suggested above may be enough to ask of welfare economics. There are those, how ever, who do ask more, those, who, in the last analysis, are searching for justice, and who hopefully believe that welfare economics can be a valuable tool in the search. The efforts of many economists to help economic science "grow up" by scrupulously cleansing the body of theory of all taint of value judgments and interpersonal comparisons have undoubtedly had great value in that the pristine body of doctrine serves as a firm foundation for efforts to apply economics in the realm of policy. The course of greater maturity on the part of economists now would seem to be a frank approach to ethics. Thus, Blaug says, "... the true function of welfare economics is to invade the discipline of applied ethics rather than to 21 avoid it." frankness about the matter is essential. Hla Jtyint agrees: . . . it should be noted that no one has ever pretended that it is possible to make a complete 21M. Blaug, Economic Th^Q-ry in Retrospect (Homewood, Illinois: Richard D. Irwin, Inc., 1962), pp. ^fl-5^2. b 17 study of the problem of general welfare without making value judgements •« The question of justice, even restricted to econom ics, does involve us in a study of the general welfare, and our problem is, as Ify’ int puts it, how much a contribution can be made to a study of the general welfare while labor ing under the restrictions of scientific economic analysis or staying clear of value judgments. J The discussion that follows should not be regarded as a plea for an eco nomics infused with ethical and moral dogma of any sort. This would carry us back to the days of Proudhon, Fourier, Saint-Simon, Blanc, Owen, and Bentham. The case for dis ciplinary purity is admirably stated by Myint: . . . in spite of many reactions against it there is much to be said for the "purist" view that it is vital to have a pure economic science, independ- » ent of any particular psychology and ethics. . • . When we approach the issue of distributive justice, however, we have to equip ourselves with additional tools if we are to escape the aridity of purely formal logic. To do this, we have to build up an extension of welfare eco nomics or erect a "newer" new welfare economics. No doubt the body of thought finally emerging from such a process 22Myint, pp. cit,. p. 21*+. 23Ibid. 2^Ibid., p. 223. *tl8 will lack the logical consistency and analytic rigor of the more customary welfare economics. This should he frankly and openly admitted. Yet, at the same time, we are both chastened and heartened by reflecting upon that most rigorous and precise form of thought that is mathe matics which, despite its logical perfection and magnifi cent order, tells us nothing at all about the nature of reality. The need for ethical norms. If we are to build up a more immediately useful, though more vulnerable, body of welfare economics, we must either build upon the assertion that we can measure interpersonal utilities after all, or we must build upon some type of frankly ethical criteria. CHAPTER X FURTHER STEPS TOWARD NORMATIVE ASSESSMENT I. WELFARE ECONOMICS: A POSITIVE OR NORMATIVE STUDY? In all economics, it would be difficult to think of an expression more likely to mislead than the term "welfare economics." Certainly, the layman or even an undergraduate student of economics can readily be excused for believing that welfare economics has something to do with or is actually identical to those principles and practices popu larly lumped together and called "welfarism*" “Welfare" has become an emotive word. While few people would tend to become emotionally involved about the efforts of a person to improve his own welfare, and cer tainly there would be widespread agreement upon the propo sition that a community ought to increase the totality of its welfare, if for no other reason than the "working philosophy" of most people, if they have one, is hedonistic utilitarianism, yet "welfare" is a highly charged word. It conjures up visions of socialized medicine, or urban redevelopment, of subsidy, of relief payments, of **19 ^20 confiscatory taxation, of government Intervention, in brief of redistribution. In their ultimate conclusion, the lay man and the undergraduate may not be far from the truth. Welfare economics is largely concerned with redistribution. But what one has in mind by "redistribution” is that which shape8 the opinion evoked by the expression "welfare eco nomics ." Redistribution, indeed, may mean taxing Adam in order to transfer a part of his income to David. It also may mean, as we have seen, simply redistributing goods X and T between Adam and David, who happen to like X and 7 in different degrees, in such a way that they may maximize their respective satisfactions within the limits of the resources available. However, when cm ideal distribution of income is not assumed, the problem of redistribution changes vastly, and may indeed become something like that which the layman believes welfare economics to be. The Archibald-Little Dialogue Problems of semantics are responsible for much unproductive argument. Welfare economics would be the same regardless of what it is called. Archibald regards the problem as a creation of the so-called "essentiallst" point of view.1 *G. C. Archibald, "Welfare Economics, Ethics, and Essentiallam," Bcononica (M.S.), XXVI (Movember, 1959)» 316-327. V21 Essentialism, the nethod of Plato and Aristotle, relies upon definition. One definition calls for another. When, at last, the "infinite regress" Must half because one term can no longer understandably be defined in terms of another, the community must turn to intuition. Intuition can lead the participants in a dialogue to a mistaken con clusion. In the case at hand, individuals, including economists, come to believe, says Archibald, that welfare 2 economics is a normative study. The other approach to welfare economics is nominal ism, says Archibald. The nominalist view dispenses with the need for definitions. "Welfare" becomes simply a word. The choice of a name is purely arbitrary. As Archibald suggests, the study might as well have been called "misery economics," just as the "intelligence quotient" could also be called the "stupidity quotient. The view of the layman and the student can be dis pelled and replaced with a more correct one by some careful explanation. The dispute as to what welfare economics means, however, is carried on at a higher level and on a more serious basis. The argument, it seems, is carried on by those who 2Ibid. 3Ibid.. pp. 319, 320, 323. h22 see welfare economics as a positive study and those who see it as normative. Archibald, as a representative of the former view, wishes to present a welfare economics purified of all ethi cal content. It is a science such as bacteriology which, he says, is not a normative study, although the subjects for investigation are quite usually selected by value I f judgments. In Archibald's eyes, welfare economics is a purely positive study. The nomenclature used in the field— 5 optimum, utility, welfare, etc.— are merely expressions. Archibald is the partisan of Lionel Robbins, whose view, as we have seen in the preceding two chapters, is that economics is not concerned with ends. It does not inquire into the validity of ends; it merely asks what these ends are, and then seeks to study the progress toward the attainment of selected ends in an environment of scarce means.^ Archibald joins in this attitude. The theorems of welfare economics are simply those of positive economics. "They are," asserts Archibald, "concerned with 7 the relationship between given ends and available means •" ^Ibid.. p. 321. 5Ibid. 6Ibid., p. 320. ^Lionel Robbins, An Essay on the Mature and Signifi cance of Economic Science (second edition: London: Macmillan and Co., Limixed, 19**0), p. 2*f. *f23 The »»Hng of an absolute cleft between ends and means is an incorrect dichotomy, for there is an inter dependence between the two. This illogical distinction persists in much of the thinking in welfare economics in which the argument runs that the ends shall emanate from some nonprofessional source, and upon their pronouncement, economists shall specify the means requisite to their attainment. But the ends condition the means to be used, and therefore the source of ends cannot be dirorced or abdicate from the necessity of sharing in the determination of means. Similarly, those looked to as experts in the field of means determination, in this case economists, cannot be excluded from ends or policy determination. The goal of, say, justice in the distribution of income will Itself be partially determinative of the means used to approach this end, and the means used will likewise shape the ultimate form that justice will take in income distri bution. The fabric of the society in which desired changes take place cannot be escaped from in determining goals and the means to their attainment. Goal-seekers and goal- prescribers merge. How can they be distinguished? Par ticularly is the distinction blurred in the context of a democratic society of the Western type. In our society, justice in income distribution, or any other broad social goal, cannot be attained by expecting the goal of justice *+ 2*f to be defined by a source wholly unconcerned with means, nor can the path be found by experts who remain detached from the end to be served. The problem is more than com munication or "feedback.” It is one of total concern with the end-means problem, which is in essence only one. The ends in any type of society justify the means and the means themselves shape the end. As Milton Friedman has saids To deny that the end justifies the means is indirectly to assert that the end in question is not the ultimate end, that the ultimate end is itself the use of the proper means. Desirable or not, any end that can be attained by the use of bad means must give way to the more basic end of the use of acceptable means.0 The question welfare economics— positive economics— attempts to answer has no normative significance, says Archibald. The question his version of the discipline answers is, H. . • under what arrangements will the indi- q vidual's choice be expanded?**'7 As we have pointed out before, this in itself involves a value judgment (that individual choice should count) and therefore by his own postulate, Archibald has demonstrated that welfare econom ics cannot be wertfrei. Little is the chief protagonist for the view denounced by Archibald. Little has argued for the Q Milton Friedman, Capitalism and Freedom (Chicagot University of Chicago Press, 19^>^)> P* 22. ^Archibald, op. cit.. pp. 319”320. 25 inclusion of ethical judgments into welfare criteria. More precisely, we should say, that he argues that ethical pre suppositions are already included in the body of welfare economics and should be frankly recognised. In the quoted statement that follows, Little has seemingly divorced himself from the Archibald view as forcefully as possible: "Welfare economics and ethics cannot, then, be separated. They are inseparable because the welfare terminology is a value terminology."10 The above passage is the central theme of Little's view of welfare economics. Archibald, however, is not impressed by Little's claim that the vocabulary of welfare economics, consisting as it does of emotive words, makes the discipline into a normative study. To Archibald, the words are merely incidental; they are mere "shorthand."11 In rebuttal, Little replies: It may he suggested that welfare economics could be purged by the strict use of a technical terminol ogy, which in ordinary speech had no value implica tions. The answer is that it could be, but it would no longer be welfare economics. It would then con sist of an uninterpreted system of logical deduc tions which would not be about anything at all, let alone welfare.a2 10I. M. D. Little, A Critique of Welfare (second edition; London: bxford university Press, I960), pp. 79-80. 11Archibald, on. cit.. p. 323* 12Little, op. cit.. p. 80. * f 26 Archibald, refusing to concede that his point of view would leave welfare economics meaningless, says that Little would destroy positive economics; he would leave nothing but "metaphysics and l o g i c . J. de V. Graaff joins with Little. He strives ear nestly to persuade his readers of the ethical basis of wel fare economics. His efforts consist largely of referring to the ultimate "nonscientific" or nondemonstrable founda tions of science, but he is not a purist about the matter and notes that we cannot go back to metaphysics on every 1*+ issue. This is as true of any science as it is for economics. Graaff succinctly states his concept of welfare economics as an effort: ". • • largely to see that specific injunctions can be developed from general premis- 15 ses— that is, from premisses that are widely accepted." Thus, to Graaff, welfare economics shapes its prescriptions in the light of "premisses that are widely accepted," these premisses being value judgments which are widely enough held to form some sort of consensus. ^Archibald, loc. cit. ^ J . de V. Graaff, Theoretical Welfare Economics (Cambridge. England: The Syndics of Cambridge University Press, 1957), pp. 1^3 9 151, 167. l5Ibid.» P- 167. b2 7 Paul A. Samuel son is a proponent or the idea of the 16 „ social welfare function. In a curious criticism, Murray Rothbard objects to the social welfare function as a "Samueleon invention," now recognised as "empty" and "meaningless." He notes that the founders of the concept concede that ethical ideas from the outside must be imported 17 into economics. This is to say that Samuelson holds that welfare economics cannot be wertfrei. It is difficult to understand what Rothbard means by "bringing in ethics from the outside." Does he believe that ethical values can be found within the body of posi tive economics? Professor Samuelson has said that "the social welfare function is a concept as broad and empty as 18 language itself. ..." This does not mean that it is valueless. To perform the logical manipulation involved in saying that two plus two minus four equal nothing, is similarly meaningless, but a knowledge of the numerous related and more complex operations of arithmetic is quite ^The social welfare function is considered in the next chapter. ■^Murray N. Rothbard, "Toward a Reconstruction of Utility and Welfare Economics," On Freedom and Pres Enter prise . ed. Mary Sennhols (Princeton, Hew Jersey: D. van soetrand and Company, Inc., 1956), p. 2*f7. "18 Paul A. Samuelson, "Comment" on Kenneth E. Boulding, "Welfare Economics," A Survey of Contemporary Eognomlcs, ed. Bernard P. Haley (Homewood, Illinois: Richard” . Irwin, Inc., 1952), p. 37. ^28 valuable for the assistance it yields in the discernment of certain empirical facts. Thus, Samuel son says of the social welfare function: At some point welfare economics must introduce ethical notions from outside of economics. Which set of ends is relevant is decidedly not a scien tific question of economics. This should dispel the notion that by a social welfare function is meant some one, unique, and privileged set of ends. ^, That welfare economics can come to grief without interpersonal comparisons is indicated by a passage from Melvin W. Beder: Consideration of the welfare implications of envy, for example, make it impossible even to say that welfare will be increased by everyone having more of every commodity, since we must first consider how the extra units are to be distributed.20 Resolving the Archibald-Little Dispute ' The Little and Archibald views do not need to be harmonised or reconciled because the two men are talking about different subjects. This statement can be supported by referring to a distinction between positive and welfare economics that has been made by Kenneth E. Boulding. Boulding has compared welfare economics to astrology, and 19Ibid. ^Melvin W. Beder, "Comment” on Kenneth E. Boulding, "Welfare Economics,” A Survey of Contemporary Economics. ed. Bernard J. Haley (Homewood, Illinois: Richard D. Irwin, Inc., 1952), p. 37. k-29 21 pure economics to astronomy* The astrologer, says Boulding, claims that certain positions of the heavenly bodies are "better" than others for various people* The welfare economist is much like the astrologer, he says* When the economist establishes a welfare function, he is fixing certain positions as better than others* Whether Boulding*s analogy is well-drawn or not, we can use it to help dispose of the Archibald-Little contro- 22 versy• Archibald is talking about Boulding* s "pure" econom ics— the astronomy of that study which is concerned with the allocation of scarce resources to alternative uses* Little, on the other hand, is Interested in a study which incorporates ethics and which endeavors to make prescrip tive statements on the basis of the application of ethical standards. His field is the "astrology" of allocatlonal studies• From this point on, this chapter will be concerned with welfare economics as defined by Little. The choice of this path is not necessarily one of intellectual convic tion; it is simply based on the reality that we can say ^-Kenneth E. Boulding, Principles of Economic Policy (Englewood Cliffs, New Jersey: Pirentice-Hall, Inc., 1958), pp. 8-9* 22The author believes Boulding*s analogy spuriously drawn. ^30 nothing at all about justice, unless we frankly admit value judgments into our discussion. On a purely personal basis, however, the author finds himself in substantial agreement with Little's attitude toward whatever it is that is wel fare economics, namely: The subject is one about which nothing interesting can be said without value judgements, for the reason that we take a moral interest in welfare and happiness .*3 II. REQUIRING A "GOOD" REDISTRIBUTION— THE WORK OP I. M. D. LITTLE Interpersonal Comparisons and Value Judgments In the work of Little we find a return to interper sonal comparisons. He insists that progress in welfare economics is impossible without them. Little forcefully delineates "interpersonal compari sons" from "value judgments." Value judgments, in Little's eyes, are pronouncements having "recommendatory" or "per suasive" force, but always stated in the indicative mode in 2 1 4 - order that they nay not be interpreted as commands. In economics, value judgments may also be descriptive. Never theless, they describe conditions in such a way that the attitudes of individuals toward the described matter is ^Little, loc. cit. ^ Ibid.. p. 68. ^31 - 25, 26 colored. Little calls for the employment of interpersonal comparisons. His request, while quite legitimate in itself^ does not seem to advance welfare economics very much, except perhaps in the frank facing of a most basic problem. The trouble is, as Kenneth E. Boulding has observed, that Little does not indicate how usable interpersonal compari- 27 sons are to be made. But, as we have noted in Chapter Till, the problem for welfare economics, to say nothing of justice, seems not to be interpersonal comparisons but ethics. Little does not avoid the problem of ethics in his criterion, as is typical of the authors of the several other criteria. Rather, he says that the proposed redistribution must be judged good or bad. This is undoubtedly a sound suggestion as far as it goes, for, at last, we have a criterion which does not blink at normative considerations but admits them into the discussion. The desirability of the admission of ethical prescriptions into welfare economics is agreed to by Paul A. Samuel son who says, "At some point welfare 2^Ibid.. p. 69. *°The distinction between interpersonal comparisons and value judgments was considered at length in Chapter VIII, pp. 338-3^1. 2 7 y 'Kenneth E. Boulding, "Welfare Economics.” A Survey of Contemporary Economics, ed. Bernard P. Haley (Homewood, Illinois!Richard D. Irwin, Inc., 1952), II, p. 13* * f32 economics must Introduce ethical welfare functions from 28 outside of economics.M In Little’s work, the very important question of whose judgment or whose ethical canon is to serve as the guide is not indicated• It could not be expected that Little could properly answer this question, although prac tically the question must be faced. The answering of this question, particularly in the context of a liberal demo cratic society has been examined by a number of competent economists who have returned either inconclusive or pessi- 29 mistic results. The Little Criterion To the company of the well-known Kaldor-Hicks and Scitovsky criteria, Little has added a third test, the three together forming what he calls a "three-fold cri terion."^ The Little criterion holds: . . . an economic change is desirable (and increases welfare) if it causes a good redistribution of wealth, and if the potential losers could not profit ably bribe the potential gainers to oppose it— always assuming that no still better change is there fore prejudiced.31 Samuelson, on. cit.. p. 37. 2^The results of some of these investigations and studies are considered in the next chapter. ^°Little, o p . cit.. p. 101. 31Ibid., p. 109. ^33 A hypothetical situation. For the tine being, let us assume that a clear ethical norm is established and is administered by a despot. Then, the decision-maker has only to satisfy his own ethical inclination to pronounce the redistributional change "good” or "bad." The fulfill ment of the criterion, of course, requires that the losers cannot profitably bribe the gainers to forego the change. In Figure 20, suppose that the initial distribution is at F. If the ordering authority (here, tentatively a "despot") establishes the distribution at G as preferable to F, that is, the distribution at G is "better" than at F, at H everyone will be better off than at G. Therefore, if it is possible to attain G from F by an income redistribu tion, a policy change can be endorsed which would bring society to point H. The change involved in going from F to H causes a good redistribution of wealth inasmuch as the change from F to G was declared to be good by the ethical interpreter. The Scitovsky criterion shows that the losers (David) could not profitably bribe the gainers (Adam) to forego the change. All (both) parties are better off at H than at G. Similarly, we can conclude that H is better than F on the grounds that if it is possible to achieve by an income redistribution a distribution such as J which is adjudged as better than (socially or dictatorially pre ferred to) H, everyone is better off at J than at F. Here bib D U U* U* u u o FIGURE 20 THE LITTLE CRITERION the Kaldor-Hicks criterion is applied; gainer Adam can com pensate loser David. Now let us consider the problem posed in conjunction with Figure 19 in the immediately preceding chapter. This problem is represented on Figure 20 of this chapter by com paring J with E. Suppose the distribution of welfare is better at K than at J. The Kaldor-Hicks criterion is not satisfied inasmuch as there is no way in which gainer Adam could compensate loser David. The Scitovsky criterion is, however, fulfilled, in that loser David is unable to bribe gainer Adam from making the change. The change, according 32 to Little, should be made. That the final three-fold test proposed by Little encompasses the Kaldor-Hicks and Scitovsky criteria shows that he regards them as necessary, though inadequate tests for a final appraisal. However, he has considerable doubt about the possibility of attaining the perfect randomness in the distribution of gains and losses if the Hicksian 33 long-run argument is to be acceptable. ^ Problems of the Little Criterion Little indicates that the guide for a desirable economic policy is whether it is generally (socially) 32lbid.. pp. 10*t-107 33ibld.. p. 91 * - . >f36 acceptable. Acceptability, he notes, nay not necessarily comport with that which is good. According to Little, whether a change is "good” or not is purely a matter of personal opinion. He explains: "Each person must answer for himself the question, 'Would this change affect real 3if income distribution favorably or unfavorably?'" This statement from Little is at best tautological; at worst, it is empty. It does not solve anything; it raises more questions than it answers. Is the question of whether something is "good" purely a matter of personal opinion? Can everyone or anyone have the right to define the good for themselves? Even under a purely relativistic view of ethics— say, one that would allow one society to define infanticide as a desirable practice, and another to condemn it— few would advance the idea that the definition of good is a matter of personal opinion. Again, we are faced with the problem of a consensus, for whether we believe in purely relativistic moral codes, or, whether, at the opposite extreme, we believe that the moral code finds its source in the Absolute, the implementation of these codes requires a consensus of some kind of coercion. In a democracy, the really urgent and difficult philosophical inquiries are to find if the consensus (e.g., the 3>fIbid. **37 electorate) is an expression of the general will, if the general will is an expression of the good, and if the con sensus, such as it is, is reflected in welfare economics or in perfect competition. Recall that Thomas Nixon Carver and John Bates Clark attempted to answer something like the 35 latter issue in their works on distributive justice. In the final analysis, it is rather difficult to say just what it is that Little accomplishes with his criterion. The question of the good as comprehended in the Little cri terion so overrides the application of the Kaldor-Hicks and Scitovsky criteria, that one wonders if the two earlier tests are superfluous once ethical considerations are admitted into the discussion. Ethically, they seem to pro tect the status quo ante which in itself may be a worth while objective. It could be that even if A ought to be benefited at B*s expense, perhaps B should not undergo the transfer without some consideration being made for his wel fare. A truly sound ethical judgment would take B*s wel fare into consideration. Therefore, as to the matter of the employment of the other two criteria, William J. Baumol seems to appraise correctly the procedure suggested by Little when he says: . . . judgment of the desirability of a change in distribution seems to be a question begging device ^^See Chapter III *+38 which, make^the rest of the procedure somewhat pointless •• This same view has been expressed In a review of Little's work by Charles Kennedy who feels that the use of the Scitovsky criterion is "redundant ."37 If some deter minative source (despot, parliament, or popular majority) can determine a "best" welfare position, there is no need for the Scitovsky criterion. In an edition of his Critique subsequent to Kenne^r's review, Little reasserted the necessity of applying the Scitovsky criterion. Little feels that in the most likely situations in which the decision-maker does not have well- ordered preferences and a complete picture of the economic configurations following the change, the Scitovsky cri terion is necessazy. He urges: Where redistribution and compensation are possible, but where wider redistributions than those involved in the change are not in question, then the Scitovsky criterion is sufficient (but not neces sary) for the change to be desirable if the redis tribution involved is also good— while the Kaldor- Hicks criterion is not sufficient even combined with a judgement that the redistribution is good. ^William J. Baumol, Welfare Economics and the Theory of the State (Cambridge: Harvard University Press. 1952), p. 136. 3^Charles Kennedy, "The Economic Welfare Function and Dr. Little's Criterion," Review of Economic Studies. XX (1952-53), 138. 38Little, on. cit.. pp. 108-109. Italics mine. *09 At tines, It seems that Little comes very close to plain utilitarianism In his decisional guide; yet, ulti mately, he does divorce himself from Benthamite philosophy when he says, "In order to reach our ethical conclusions we have to judge that a certain redistribution would be good. 39 and not merely that it would increase happiness." This is an important stand in the context of Little's argument and an important statement in the frank effort to salvage welfare economics for application to policy matters. Utilitarianism, despite the connection of many of its advo cates with economic, social, and political reform, is often irreconcilable with the interests of justice. The British philosopher A. C. Ewing has pointed out that utilitarianism asserts that as much happiness as is possible ought to be produced. It does not imply how it ought to be distributed. Justice, says Ewing, requires that when we are faced with a condition in which one distribution produces slightly less happiness than the other but is fairer than the other, we *fO should prefer the former to the latter. Breaking away from the frankly utilitarian bias of English economics and the Paretian optima criteria is seemingly Little's great contribution, for it provides a 39lbid., p. 116. Italics in original, ho A. C. Ewing. Ethics (New York: Collier Books. 1962), p. h6. MfO foundation, at least, for a concurrent consideration of welfare economics and justice, a dialogue we shall explore in the last chapter, III. THE SAMUELSON CRITERION— A PRELIMINARY TO ETHICAL DISCUSSION In order to continue our search for an approach to distributive justice through and with welfare economics, we must examine another criterion, this one devised by Paul A, Samuelson. Noting that Tibor Scitovsky was concerned about the favorable predisposition for the status quo suite demon strated by the Kaldor-Hicks criterion, Samuelson criticizes the Scitovsky criterion for its predilection for both the status quo ante and the status quo post. Scitovsky, Samuelson says, should have made his criterion depend upon the totality of all possible positions in each situation. In other words, Samuelson believes that it is not enough to simply double the Kaldor-Hicks criterion; the test must be increased infinitely. It is not enough to be satisfied that a utility possibility curve lies wholly outside another in the vicinity of the points under consideration; the Samuelson test requires that at least one utility Mfl ifl possibility curve lies everywhere outside the other. The criterion is based upon an increase in real national income• Samuelson insists his test is necessary in that: Without this testy at an infinite number of points, no acceptable definition of an increase in poten tial real income can be devised at the non-ethical level of the new welfare economics.4,2 As we have seen, the utility possibility curve is constricted from a knowledge of the highest total welfare obtainable at various output combinations assuming the existence of one production possibility curve. Each point, therefore, on the utility possibility curves represents a distribution of utility when the conditions of production are at a fixed maximum. When the diagrams include more than one utility possibility curve, we know that society can change from one level of production to another, or that persons have changed their utility orderings for the goods and services they consume or that both of these conditions are true. We need, therefore, as Samuelson suggests, a curve showing the maximum utility possible to an econoiqy in every situation, a curve which lies wholly outside all other utility possibility curves. Such a curve would be an envelope of all the other utility possibility curves ^Paul A. Samuelson, "Evaluation of Real National Income." Oxford Economic Papers (New Series). II (January. 1950), V m ------ 1+2Ibid., p. 9. Mf2 and is termed by Samuelson as a situation utility possibil- L.-5 itv curve, J A more descriptive name, however, would seem to be that adopted by Bator, that is, to call the curve a "grand utility possibility frontier,"^ "Frontier" accurately expresses the nature of the curve, for as Mishan notes, it is the boundary of all util ity combinations possible within the given resources of a community* The utility possibility frontier UU is shown in Figure 21. It is the envelope curve of the "point" utility possibility curves uu, ufu', and u"u". It lies beyond all other utility possibility curves. The totality of utility available to a community is no longer ambiguous. But there are innumerable points on UU, and we do not know which one of them is the one to be designated "best." As Bator says, curve UU is "a single dimensional infinity of best combinations." Curve UU does not establish any ethical basis for the distribution of welfare. It does have ethical presuppositions, however, ^^Ibid,, p. 13. Francis M. Bator, "The Simple Analytics of Welfare Maximisation," American Economic Review. XLVII (March, 1957), 27-29. 'h. J. Mishan, "A Survey of Welfare Economics. 1939-1959," The Economic Journal« LXX (June, i960), 232 ^Bator, on. cit.. p. 28. M O D It t 0 uM u u» U U FIGURE 21 THE UTILITY POSSIBILITY FRONTIER Wfr as Mishan points out, namely that the individual is the sole [and best?] judge of his own welfare, and that the welfare of the community is solely dependent upon the wel- lf7 fare of those who comprise it. The ethics implicit in curve UU seem to be those of hedonistic utilitarianism. Curve UU is a necessary but not sufficient determinant of welfare or of justice. The Necessity for Ethics The distribution of welfare between individuals must be based upon some ethical concept. The concept, however it emerges, and from whatever source, may or may not be just. For example, David's need may be very great and that of Adam trifling. This is not enough to establish a dis tribution in favor of David; David's need may be for a quart of whisky a day. The situation is further compli cated if Adam is the major contributor to the economy while David is a hobo. We can imagine much greater problems for distributive justice if we assume that David's needs are greater than Adam's but that David's needs are rather unwholesome, and, at the same time, David is by far the greater contributor to the economy. However, to make matters even more confused, we might also suppose that David's contribution arises from the ownership of vast ^Mishan, op. cit.. p. 23*+ Mf5 quantities of land and capital resources which he obtained by inheritance. David spends his days resting and his evenings playing. Adam, however, has only his labor to offer, which is worth very little as he is completely unskilled and being a simple person, he wants little else other than bread and circuses. The social welfare function— a note. The problem, then, for a "best" distribution of welfare is the selection of a single point on the utility frontier UU. This must involve some definitive concept of the ethics of distribu tion. For analytical purposes, the concept can be summed up in the so-called "social welfare function." Whatever comprises this social welfare function, however it comes into existence, whatever its source, however nearly the community fulfills its ideal ethic or misses it, the social welfare function for our purposes, to use Bator's words, . denotes the ethic that is to count, or whose impli- 1+8 cations we wish to study." For the purposes of this study, we have arrived at the limits of a welfare economics having ethical concepts abstracted. To paraphrase Bator, there are no considera tions of economic efficiency that permit us to designate David's welfare function, which calls for much X and T with ^®Bator, loc. cit Mf6 little of the same going to Adam, as economically superior L.q or inferior to Adam's welfare function. 7 Unless we admit ethical propositions into the discussion, we cannot con front the issue of distributive justice. ^ Itoid.. pp. 28-29 CHAPTER XI USING THE SOCIAL WELFARE FUNCTION The social welfare function necessarily involves the admission of propositions of normative content into analyses of the welfare economics type. A social welfare function is simply a set of value judgments. The concept of the social welfare function has arisen, as Abram Bergson has noted in his classic essay on the idea, simply because welfare economics rapidly comes to a limit of usefulness, albeit self-imposed, unless there is admitted into con sideration a set of criteria by which economists may com pare numerous optima, and say which one is the best.*- I. EXPRESSING THE SOCIAL WELFARE FUNCTION If we begin with the assumption that the utility accruing to Adam and David separately depends upon the amounts of X goods and Y goods that they consume, we can write their respective ordinal utility functions as follows* Abram Bergson, "A Reformulation of Certain Aspects of Welfare Economics," Quarterly Journal of Economies- LII (February, 1938), 311• V+7 Ud = fdCXd, Td). Then, following the utilitarian principle that the welfare of society depends upon the satisfactions of those who com prise it— in this case, Adam and David— we can write the simple social welfare function: w = v- This simple functional relationship shows that W, the wel fare of society, could be increased by augmenting the sat isfactions of Adam or David or both. The proposition of the most basic form of welfare economics is that W ought to be increased whenever possible. The welfare function we have drawn up so far is exceedingly simple. Human welfare, even purely economic welfare, obviously depends upon more than the quantities of goods consumed. The Bergsonian Welfare Function In a landmark work, Abram Bergson developed a social welfare function which comprehends an ordering of the vari ous determinants of individual well-being which, in turn, 2 determine aggregate or social welfare. for example, 2Ibid., pp. 310-33^* Mf9 Bergson states a social welfare function in mathematical notation as: W * W(xx, yx, a*, bX, a{, bj, . . . , x^, yn, aj, bn.* ^ ^ ^ ^ j r» ®) ^ In the above functional relationship showing the dependency of welfare W on the factors enclosed in parentheses, X and Y are two kinds of consumers* goods; A and B are two kinds of labor; and C and I) are two other factors of production. Thus, Cx and D* are the two nonlabor factors applied to the production of X. We may designate and yA as the amounts of X and Y consumed by any jL th individual. Simi larly, ax, bx, aj, bj are the amounts of work performed by some i . on the goods X and Y during a given time period. The remaining elements r, s, and t, etc., are other aspects of life such as climate and geography affecting the welfare of the individual. The final elements are not strictly economic and may be taken as given, and, hence may be dropped from the equation to form an economic welfare func tion which we may express for the community of Adam and David as follows: E » 3Ta* *a» t > aj aj* bj* *d, y<j* bd, ®d’ bj, C*, D*, C*, JF). h50 One justification for setting up an eeonomi e welfare function is that it is impossible, as Little has suggested, to reach conclusions about a particular area if one tries 3 to talk about everything at once. A more pertinent reason is that suggested by Jerome Rothenberg, that the changes under discussion in the bulk of theorizing in welfare eco nomics are not great enough to have any particularly sig nificant impact upon whatever institutional realities may i f be represented by r, s, and t. As Rothenberg notes, this exclusion is not an unusual assumption in economics. With the exception of the theoretical writings of Marx, Veblen, and Schumpeter, it is the standard procedure of economic theorizing.^ Mathematically, the economic welfare function tells us that economic welfare will be at a maximum when the derivative of the function is equated to zero, that is, dE = 0. In the Bergsonian schema, since economic welfare consists of the consumption of goods and services, economic diswelfare is defined as consisting of the sacrifices— ^I. M. D. Little, A Critique of Welfare Economics (second edition; London: Oxford University Press, 19^0), P. 117. ^Jerome Rothenberg, The Measurement of Social Welftue (Englewood Cliffs, Hew Jersey: Prentice-Hall, Inc•, 1961), P. 9. 5Ibid. b5l effort and waiting— that must be undergone to produce goods and services.^ Thus, in a situation of maximum economic welfare, marginal economic welfare must be equal to margi nal economic diswelfare, or: Marginal Welfare Marginal Diswelfare A[px(ai/pcx) - PyCpy/X)7)] = -(p e /*cx - pE/»cy) *[pX(ax/^DX) - PyCPT/PD^)] = -(*E/?Di* - 3E/PT?). In the above equations, p^ and py are the prices of X and Y respectively. The convenience multiplier, X , may be ignored in extracting the economic meaning of the expres sions. Diswelfare is shown as a negative magnitude. Obviously, if an inequality exists, the economy would either benefit from greater productive effort or from more leisure. If the Bergflon welfare function or any other state ment, treatment, or test shows the existence of value judg ments in any welfare criteria, including the Pareto optimum the door seemingly is opened to such additional value prop ositions as may be felt desirable under the circumstances. This suggests that prudence would require the observance of the rule of Occam's Eazor to the end that no more ^Some effort involved in production may be enjoyable in itself. h52 assumptions than are absolutely necessary are to be admitted into consideration. The Bergson welfare function is extremely helpful for the two clarifying aspects that it adds to the context of our discussion. First, it provides the conceptual answer we need for an unambiguously "best'1 position. Second, it confronts us with the necessity of seeing values as underlying social or community welfare. We shall post pone to the last chapter of this dissertation the questions suggested by the second point— questions as to what are these value8, how are they found, and how are they estab lished? We must now establish the remaining element that will fix a particular point on the utility frontier as the unambiguously "best" position. The object of our search is found in what Paul Samuelson calls “social welfare con- 7 tours." These contours have the appearance of an individ ual's indifference curves— convexity with respect to the origin, negative slope, nonintersection, etc. They are not, however, adaptations of the indifference curves of an individual to a social situation, that is, they are not community indifference curves from which the community ?Paul A. Samuelson, "Social Indifference Curves," Quarterly Journal of Economics. LXX (February, 1956), 17. **53 8 demand for goods and services can be read. The contours that ve consider can be represented graphically as lying within an ordinal utility surface. If we combine these "social welfare contours" with the "grand utility possibility frontier" we finally arrive at what Bator calls the "only point of all points that has 9 unambiguous or prescriptive significance," By combining the welfare contours with a situation utility possibility curve, we are able to find the point on one of a number of possible contract curves at which the economic welfare of the community is maximised. In Figure 22, we have sufficient information to establish point B as the one best possible point of all points. Curve FF is the grand utility frontier, the envel ope curve of a number of utility possibility curves. The curves labeled W are members of the family of social wel fare contours. At B, the utility frontier is tangent to W^, the highest attainable contour of the welfare function. Q Samuel son contends that this type of community indifference curve does not exist. He has rigorously demonstrated their nonexistence. He explains the "common sense" of his nonexistence theorem as follows: "Allocating the same totals different among people must generally change the resulting equilibrium price ratio. The only exception is where tastes are identical, not only for all men, but also for all men when they are rich or poor," Ibid.. p, 5. 9 •'Francis M. Bator, "The Simple Analytics of Welfare Maximisation." American Economic Review. XIVII (March. 1957), 29. ----- ------- P p u 0 FIGURE 22 THE POINT OP 'CONSTRAINED BLISS" *♦55 Point B, which we have heretofore called the Hbest” point is often referred to as a point of "bliss,1,10 or "con strained bliss,m11 or the "maximum social welfare func tion."12 The term "constrained bliss" seems particularly appropriate in that "bliss," first of all, is a word well- suited to anything as grandiose in concept as the social welfare function, and the idea of constraint is suggestive of the limitational aspects of the economic problem under lying the utility possibility curves enveloped by FF in Figure 22. The utility frontier shows the possible distributions of satisfactions in a society, and the welfare contours por tray how society would like to have the satisfactions dis tributed among its members. Each contour farther from the origin shows a higher level of welfare. Obviously society need not content itself with levels of welfare below the capability of the economy. Equally obvious, society cannot attain levels of welfare beyond the current productive powers of an economy. This situation is shown graphically in Figure 22 at point B, where the welfare of society has ■^Samuelson, "Social Indifference Curves," p. 19• 11Bator, loc. cit. 12E. J. Mlshan, "A Survey of Welfare Economics, 1939“ 1959*" The Economic Journal. LXX (June, I960), 232. *+56 been maximized subject to the constraint imposed by the realities of productive technology, the natural endowment of resources, and their possible combinations.^ We should note that at last the conditions of the Paretian optimum and the ethical optimum have been brought together. The Pareto efficiency conditions have not been discarded by the introduction of ethical judgments. Posi tive economics has not been sullied by contact with norma tive analytics. At the same time, however, the impossi bility of deducing norms from wertfrei premises is evident, as is the necessity of establishing them with rigorous analysis. The conditions of the Pareto optimum are neces sary conditions of maximum social economic welfare; they are not sufficient. We should note also that a well-defined and clearly-stated set of ethical propositions are not helpful in saying anything meaningful about distribution -^^Mathematically, this is expressed by maximizing the social welfare function subject to the constraint imposed by the situation utility curve which reflects the productive ability of the economy, ^max. = wtUa’qax, <layJ ud(lJdx> °-dy’ ^>1 + X f ♦ Qdx’ ^ay’ ^dy’ + ^d^‘ In the above equation, q-j^ is the quantity of the jth good consumed by the ith individual, 1^ the labor performed by the ith individual, and f is the production possibility function. **57 without considering the economic problem* The Pareto con ditions supply discipline to an attack upon the issue of justice in distribution* However, as we previously noted, all that the positive discipline can do is postulate the curve FF; once this has been done, the role of the econo mists qua economists is over* Now, if economists wish, they may devote their scholarly skills to the derivation of the social welfare function or, if the latter is too much to expect of positive economists, we can settle for a pre cise statement of why we need a social welfare function and a suggestion of the elements of its composition* On this matter, Bergson has written: In general, any set of value propositions which is sufficient for the evaluation of all alternatives may be introduced, and for each of these sets of propositions there corresponds a maximum position* The number of sets is infinite, and in any particu lar case the selection of one of them must be determined by its compatibility with the values prevailing in the community the welfare of which is being studied* For only if welfare principles are based upon prevailing values, can they be relevant to the activity of the community in ques tion* * * * The determination of prevaili ng valuen for a given community . . ■ [isl a proper And neces sary task for the economist.™ We should note that the welfare function we are discussing clearly works on the maximisation of social gain, that is, whatever point is ultimately achieved, our theoretical framework requires that it lie on FF in i i f Bergson, on. cit** p. 323* Italics mine *+58 Figure 22. Certainly, some personal interest may prefer that the point be established elsewhere than at B. A point beyond FF is out of the question within the period to which the diagram refers. A point within FF is open to condemna tion by the economist as inefficient. Any point on FF other than B indicates a distribution of welfare afoul of the moral code of the community. The ethic that shapes the welfare function, whatever that ethic is. is the factor that makes B the most desirable of all positions available to society. We should be careful, at this point, to note where we are. All that we have really shown is the essentiality of ethics in arriving at a point of maximum welfare. We have seen what we can do with the social welfare function if we know what it is. For example, we cannot say that point B conforms to our canons of a just distribution; it might represent the schema of a just distribution in the middle ages under the aegis of the scholastic just price. This would certainly not be construed as just in our times or by such diverse personalities as Thomas Nixon Carver, Karl Marx, Henry George, or A. C. Pigou. If we are to continue to talk about justice or any other basis of distribution, we shall have to consider a concrete social welfare function. The merest consideration suggests that it is probably quite difficult to find or to V59 even expect that a social welfare function exists in a democratic society of the western type. II. FINDING THE COMMUNITY STANDARD The Social Welfare Function and Justice Little, in commenting upon the social welfare func tion approach, says that the applicability of the Bergsonian-Samuelsonian construct to the real world requires a "superman" to pronounce the necessary value judgments. Furthermore, Little requires what he calls "consistency," now perhaps better called "transitiveness" in superman's judgments; if superman says X is better than Y, and Y is 15 better than Z, then, he must pronounce X better than Z. Superman must be reasonable or rational; at the least, he must possess qualities attributed to homo economicus. "Superman" is Little's shorthand for the source of ethical pronouncements• Conceivably, he could be a divine or supernatural being speaking directly to his people or perhaps through an inspired prophet, a duly constituted vicar, or an assembly of persons properly disposed to hear, consider, and promulgate his commands. It would seem, therefore, that a theocratic society or one organised on the now very unpopular idea of the 1^Little, loc. clt ^60 divine right of kings would have little trouble in defining the social welfare function. This is Little's view, for he says: It thus appears that the "ideal" welfare dis tribution could be defined only in a totalitarian state, where economists, or other subjects, never question the value judgements of their rulers. But even in such a state it might not be safe to assume that the distribution of welfare was just what the rulers wanted.1” It is important to note in connection with the issue of justice— the focus of our discussion— that all Little has really said is that the task of ascertaining some kind of social welfare function is facilitated in an antidemo cratic society. But since antidemocratic societies have shown an almost universal and invariant penchant for injus tice, we are extremely doubtful of finding any criteria for a just distribution in past or present totalitarian politi cal organisations. The problem, then, seems to be that there is a great difference in finding a social welfare function and in determining an ideal distribution of wel fare. It would not seem too much to say that those coun tries which have displayed the greatest passion for jus tice, both juridical and social, have been those following the western liberal tradition— those societies standing in l6Ibid.. p. 121 b6l the mainstream of Judeo-Greco-Christian thought. In these societies, it has been common to find the Latin maxim, "▼ox populi. vox Lei est" replacing the older formula of the divine right of kings* Whether we follow the Latin slogan literally and truly believe that the majority of the people speak with the voice of God, or wish to assert in the liberal humanistic tradition that majority rule is a sound principle promotive of human dignity and welfare, we could quite comfortably decide that the decisions of the majority or public opinion determines the social welfare function. This idea is rejected by Little, the basis for his rejection being the enormous diversity within public opinion. Similarly, he rejects the possibility of defining the "government," whether thought of as either parliament or cabinet, as "superman," He suggests that the government may not approve of the prevailing distribution, and that the idea conveyed by the definition is a highly undemocratic one, for it suggests, says Little, that the government always knows what is best or can invariably determine the 17 public interest. In a similar vein, Milton Friedman vigorously con tests acceptance of the belief that the "government" is 17Ibid. if 6 2 a dispenser of wisdom as an idea unworthy of the free man in a free society. Such thinking, says Friedman, ". , , implies that the government is the patron, the citizen the ward, a view that is at odds with the free man's belief in his own responsibility for his own destiny."^ Little's objection is, in part, irrelevant to our discussion and, in our context, may confuse two separate ideas. First of all, that the principle is undemocratic is not strictly an issue here, for it is perfectly possible that a government could define a social welfare function, albeit a perfectly valid one, in a most undemocratic fashion. Little seemingly concedes this point in his dis cussion, previously cited, of the definition of a social welfare function by a totalitarian government. Second, Little brings into the discussion the validity of the social welfare function defined by the government. Moreover, he questions whether the government can say what is in the 19 public interest, ^ thus largely forcing a return to the origin of the social welfare function in public opinion, however defined and however adduced. Once the validity of the social welfare function is brought into question, the ease of discovery is quite 18 Milton Friedman, Capitalism and Freedom (Chicago* University of Chicago Press, 1962), p. 22. ^Little, loc. cit ^63 another matter. By "validity" we mean here the conformance to the broad, basic social ethics typical of western society. We shall return to a more complete consideration of this statement in the conclusion of this study. Tentatively, we may explore the problem of defining the social welfare function socially or "democratically." As one excuse for so doing, we might simply cite the predi lection for and the widespread acceptance of democratic choice-making in our society• Democratic Selection of a Social Welfare Function One of the most famous attempts to consider the possibility of eliciting a social welfare function as expressed within a democratic society is that of Kenneth J. Arrow.20 Arrow has laid down five conditions under which his model operates, four of them being mainly ethical in nature. The first condition is designed to insure the perti nency of the social welfare function throughout his analy sis. The social welfare function must give rise to a true 21 social ordering. Among the alternatives, there must be a 2PKenneth J. Arrow, Social Choice and Individual Values (Cowles Commission for Research in Economics, Mono graph No. 12. New Torks John Wiley dt Sons, Inc., 1951). 21Ibid.. p. 25. - b6b set, S, of three, say, X, 7, and Z from among which the choice must be made in the light of the social welfare 22 23 function. ’ The second condition requires that the social welfare function be such that the social ordering, at the least, does not move in the opposite direction of the orderings of the individuals in society. A social ordering reflects the ranking of the alternatives open to a society, or, perhaps more accurately, is a social ranking of the alternatives open to the individuals comprising a society. A democratic context requires, as does Arrow's second condition, that the social ordering be reflective of and not antagonistic to the composite of individual orderings. The third condition provides that social orderings shall be independent of any alternatives excluded from con sideration. Thus, if the set of alternatives given as available for an individual ordering is expressed as S = {a,b,c,d} , the choice must be unaffected by the pres ence or absence of alternative e, the latter having no 22Ibid. 2^As expressed by Arrow, there must be ''among all the alternatives . . . a set S of three alternatives such that, for any set of individual orderings T^ . . . T , of the alternatives in S, there is an admissble set of individ ual orderings Rt . • • B-» of all the alternatives such that for each individual 1, xEj* if and only if xTix for x and y in S." (p. 25). The symbology used in this footnote is explained in the text of this chapter. for a liberal democratic society of the western type. fare function not be imposed. Citizens or consumers must be sovereign; the social ordering must arise solely from individual orderings. the condition of nondictatorship. No one citizen must be able to dictate social choice. together may seem to be puzzling. As Jerome Rothenberg has pointed out, although individual i, is constrained from imposing his own set of preferences upon the community, he is also a consumer and therefore is supposed to be a sovereign. Rothenberg concludes that violation of the fifth condition cannot be strictly construed as a violation of consumers' sovereignty. He suggests that conditions four and five be considered together, the fifth condition forming a part of a general requirement for consumers* 2*t sovereignty • There are two observations that should be made on the conditions laid down by Arrow. First, they are Arrow's The fourth condition requires that the social wel The fifth and final condition is commonly called The fourth and fifth conditions when considered i+66 ethical prescriptions. They may be perfectly acceptable, but not exhaustive, or they may state too much. Further more , they may be completely or partially unacceptable to any other or all of the members of society. The second major observation is that these seemingly innocuous value judgments may conceal matters of profound philosophical Importance, matters which Arrow does not refuse to discuss, but which we shall defer considering until after we have developed the nature of the so-called "paradoxes" arising from Arrow*s and kindred treatments of the problem of social choice founded upon individual values. In addition to his value judgments, Arrow postulates two important axioms.2* * The first axiom states that for the alternatives X and Y, either X is preferred to or is indifferent to Y, or Y is preferred to or is indifferent to X. These statements are expressed symbolically by Arrow as XRY and YRX, where B is understood as meaning "is pre ferred or is indifferent to." Axiom II requires that the relationship in the order- ing of the alternatives be transitive. Thus if X is pre ferred to Y— in Arrow*8 symbols, XFY— and Y is preferred to Z, then X is preferred to Z. As we have indicated, the ultimate conclusion of 2-*Arrow, o p . cit.. p. 13* Arrow's work is a paradox* After considerable exploration with the aid of the tools of symbolic logic or set theory, Arrow's answer to the problem of the social choice of a welfare function, is, as Abram Bergson has declared, 26 "largely negative." The disconcerting conclusion of 27 Arrow's work is that if the choices between social states are inconsistent, one or more of the four ethical rules must be violated. On the other hand, if all four rules are observed, social choice may be inconsistent, that is if XPT and TPZ, then ZPX, where the symbol P is understood as meaning "is preferred to." The final statement of this paradoxical result is made in Arrow's "Theorem II," more widely known under the 28 name of the "General Possibility Theorem," and usually called by Arrow's commentators the "General Impossibility Theorem. The "General Possibility Theorem” states: If there are at least three alternatives which the members of society are free to order in any way, 26 Abram Bergson, "On the Concept of Social Welfare," The Quarterly Journal of Economics. LXVIII (May, 195*0* 2> 2^A social state is described by Arrow as being a complete description of each type of good in the hands of each individual, the amounts and types of capital and labor required to engage in the desired type of productive activ ity, and the amount of social (public) goods and services required. 28 Arrow, op. pit., p. 59 i+68 then every social welfare function satisfying Conditions 2 and 3 and yielding a social order ing satisfying Axioms I and II must either be imposed or dictatorial.2^ 30 In the oanner of Bergson, Arrow postulates that there are any number of variables— in Arrow*s terminology, "social states"— upon which an individual's welfare dependsThe wide, almost limitless, choice of alterna tives available to an individual in modem society means that he has an infinite number of possibilities in the ordering of his preferences. In the free economy, the preferences of the individual will have a definite and important impact on the distribution of the aggregate income of society. Supposing that there is a code of jus tice, can it be applied in such a way as to meet the requirements of a democratic society such that the social ordering will correspond to individual orderings and to justice as well? Arrow's answer, as we have already seen, is negative. 29Ibid. 3®An illustration of the Theorem follows in the next section. Bergson abstracted from noneconomic determinants of welfare and hence constructed a more strictly "economic welfare function," while Arrow calls his design a "social welfare function," taking into consideration values rather than tastes. For our immediate purposes, the differences between the two approaches can be disregarded. i f 69 Illustration of the General Possibility Theorem. We can illustrate Arrow's General Possibility Theorem by returning to Adam and David who compose a two-man society and who have had their choice-making environment expanded by one commodity such that the set of goods and services now facing them is X, Y, and Z. We shall denote Adam's choices by the subscript a and David's choices by the subscript <1, both attached to the lower case letters representing the alternatives X, Y, and Z. The social ordering will be represented by upper case letters. In Arrow's symbols, xfi^y means that some individual i prefers or is indifferent to X over Y. This does not imply that yR^x. The former statement, xR^y, merely speci fies that at least one of the two orderings must occur, for example, xP^y or x^y, where I is the symbol for "indiffer- 32 ent to." This does not preclude both from happening. Consistency with two alternatives. We shall now state that our individuals have definite preferences. Thus we can go back to the trading proposition used in conjunc tion with the Edgeworth box analysis, that Adam prefers X, and David likes Y. In Arrow aymbology this would be stated for Adam, and yP^x for David. The fulfillment of the 32Arrow, on. cit.. p. 13. *+70 Arrow rules requires that for society, XIY. That is, society is indifferent as between the alternatives X and Y. If society were not indifferent, but rather preferred one alternative to another, the condition of nondictatorship would be violated. While this could happen, it does not necessarily have to happen. This is perfectly consistent with Arrow’s Theorem I (Possibility Theorem for Two Alter natives) which states: If the total number of alternatives is two, the method of majority decision is a social welfare function which satisfies Conditions 2-5 and yields a social ordering of the two alternatives for every set of individual orderings.33 Here the accepted democratic practice of majority rule works. Individuals within the society (Adam and David) can order their preferences according to their own personal tastes, and at the same time, determine a social ordering which is consistent with majority rule and thus their own orderings• Expanding the alternatives bevond two. The problem, according to Arrow, arises when the number of alternatives is increased beyond two.J Suppose Adam's preference pattern is such that xP_y and yP0z* Arrow’s requirement of cl Cl consistency yields xPaz. Similarly for David: zl^x and ^Ibid., p. if8. 3^Ibid., pp. 50-59• 71 xP^y, then zP^y. Here, we have two individuals who are perfectly consistent or rational in their choice-making pro cesses . Further, there is an area of agreement between them: they both prefer X to T. The social ordering satis fying this would be XPY. In the case of the pairing of alternatives X and Z, we find that Adam and David are in perfect disagreement. For Adam, xPftz; for David, zP^x. But this is the same case as that involving two alternatives in which the perfectly compatible social ordering was shown to be XIZ. Society is indifferent as between X and Z leav ing Adam and David free to prefer one over the other as far as they as individuals are concerned. The problem, here, however, is that we are dealing not with two alternatives but with three. We now have a contradiction. Our first social order ing held that XPY. Our second social ordering held that XIZ. In the relationships between Y and Z, we again find Adam and David to be in perfect disagreement. For Adam, yPaz; for David, zP^y* This implies the social ordering ZIY. Society must be indifferent between the alternatives Z and Y. The conditions specified cannot hold simultane ously. If, as we have seen, XPY and XIZ, it is impossible to say that YIZ, because this would require saying XIY, which it is obviously not, since for both individuals, that is, for all of the members of society, xP^y, to say k-72 nothing of the purely formal logical inconsistency involved. If we accept Arrow's conclusion, this seems to be the end of the social choice of a social welfare function as is made explicit in Arrow's own restatement of the General Possibility Theorem (Theorem II), which serves as the conclusion of his demonstration: If we exclude the possibility of interpersonal comparisons of utility, then the only methods of passing from individual tastes to social prefer ences which will be satisfactory and which will be defined for a wide range of sets of individual orderings are either imposed or dictatorial.^5 Arrow’s conclusion recalls Little's despair of find ing a social welfare function in other than a totalitarian , * 36 society. A fieflection upon Social Choice and Individual Values Before we consider other approaches to the paradox posed by Arrow, we should note several points about his discussion. It is primarily an exercise in formal logic. The premises are stated by Arrow himself. They may or may not be valid. They make strong assumptions about the ethos of a democratic society which may or may not be true. We may find that certain psychological considera tions are taken as given or are ignored, which in a real 35Ibid.. p. 59. ^Little, op. cit.« p. 121 **73 situation might recast the social welfare function or which, if we are arguing the case of justice, ought to recast the social welfare function. Furthermore, the entire scope of Arrow's theorising may involve implicitly the acceptance of a certain philosophical system. Postulating a similar analysis on another philosophical sys'tem might lead to different final conclusions. Finally, it may be questioned as to whether Arrow's logical deductions are entirely valid. Relating social choice and individual values to ■justice. We cannot, in this dissertation, do more than consider a few of the possible reformulations of Arrow's methods and conclusions, for a whole literature has grown up around the central and original thesis. We can note, for example, that interdependency in choice-making is not explicitly considered. David's prefer ence for Y may influence Adam's preference pattern. More over, while Adam might continue to prefer X, his preference for X might be very slight. This likely state has been considered by Clifford Hildreth whose conviction is that if one party barely favors one alternative over another, say, that Adam is almost indifferent to X over Y, while David's preference pattern is such that he has an overwhelming preference for one alternative over another, any resulting contradiction can be resolved in ordering the social choice i+7V 37 to conform with the intensity of desire, Hildreth's suggestion can be justified on the purely pragmatic ground that it serves to remove the impasse found in the Arrow paradox. It, of course, involves a much stronger value judgment than that found underlying the Pareto criterion, namely that not only should individuals get what they want, but the stronger desires of one person for one alternative should prevail over the slight desire of some one else for another alternative. Moreover, Hildreth urges that economists should not be blind to the intensity of desire (neglecting for the moment all question of how intensity of desire is measured and compared) as is required in Arrow's analysis. In Arrow's analysis, there is no way of telling whether xP^y shades off into xl^y or not. Between Adam and David, for example, the statement sPay and yP^x may conceal marked differences in the urgency which each feels for having the object of his preference. If Adam's preference for X can be shown to be urgent and all-consuming, and David's preference for T can be shown to be a momentary whim of little personal worth, the strictures of Arrow's Condition Three would seem unnecessarily onerous and pedantic • Hildreth's proposition is important. Obviously, ^Clifford Hildreth, "Alternative Conditions for Social Orderings," Econometrics. XXI (January, 1953), 81-91, **75 however, it brings back the long-disputed interpersonal comparisons of welfare. Reformulated, it is an important proposition for distributive justice. The question then becomes, not whose desire is the most intense, for the desire of an alcoholic for his favorite beverage is most intense, but rather whose desire is the most deserving under ethical principles. Earlier in this chapter, we discussed the ethical principle involved when two different distributions of wel fare produce slightly unequal sums of total welfare. We concluded then that when there is not too much diversity between the two totals, we ought to prefer the more just or fair distribution. We still have the problem now as then as to what is just or fair. This is a problem which hedonistic utilitarian philosophy cannot resolve satisfac torily. Possibly a different philosophical basis offers a hope for the reconstruction and rehabilitation of the social welfare function as a useful concept in the democratic society. We shall consider this further in the concluding chapter• The effect of changing the premises. Although Arrow's formal logic appears to be quite impeccable, several writers using his axioms, definitions, and other rule8 have arrived at results contrary to the General Possibility Theorem; that is, they have begun with premises 76 yielding perfectly consistent social welfare functions con forming to Arrow'8 value judgments, Blau has shown, for example, that it is possible to postulate feasible alternatives beyond X, Y, and Z yielding a consistent social welfare function in conformity with ■5 Q Arrow's ethical rules. Blau, in his treatment, uses an n person group. How ever, a methodological device is employed which, in essence, reduces the number to a two-person situation. In other words, Adam, David, Thomas, and Alfred can all play, but Adam plays against evezyone else. Adam constitutes set A, and David with the others constitutes set E. A similar treatment is used with the alternatives which are opened up beyond Arrow's three. Blau adds W. However, (X, Y, Z)^^ IQ and W Sg* That is, the four elements are resolved into two sets with W forming a set by itself. Although the elements of S-^— X, Y, and Z— may be ordered in any ranking, Blau's social welfare function specifies a condition which is practically tantamount to destroying Arrow's condition of nondictatorship. Adam, alone, decides how X, Y and Z are to be ordered. Julian H. Blau, "The Existence of Social Welfare Functions," Econometrica. XXV (April, 1957)* 302-313. ^The symbol €- is read "is included in." *+77 In the remaining condition, Blau provides that society must rank either S-^PS2 or ^2^ 1* This i® “ t*1 ® same as saying that alternative W must rank either higher or * « 0 lover than X, 7, and Z, these three being taken as a group. Finally, the two sets of individuals must order the relationship of to S2 oppositely. Thus, if E decides S2PS1, A has no choice other than Arrow's condition of nondictatorship is thus badly warped, but it is not completely obliterated. Adam is prevented from being a full dictator by being unable to determine the ordering of W relative to the set X, 7, and Z, and further, he must accept the condition that his order^ ing of the preferential relationship of the two sets must be opposite to that of E (everybody else). Nevertheless, these conditions do allow for the complete fulfillment of Arrow*3 five conditions. Since Adam dominates the ordering of X, 7, and Z, the social ordering must conform. Then since there are only two remaining alternatives and S2 to be ordered, the social ordering between them can be con sistent with the individual ordering between them as *+0 For example, S2PS- 1 = WP fX,7,Z}. Blau's direction for this ordering is that the members of society shall, by majority rule, decide how to rank W (So) relative to S^. Adam, in the case of this ordering, enjoys no unique decislonal status• provided in Arrow's Theorem I. Blau's conditions appear to be mainly esthetic ratber than ethical in that there is an attempt to preserve sym metry in allowing one individual to determine an ordering while allowing the rest to decide another, and then, to offset the disproportionate influence of the one individ ual's power in ordering X, Y, and Z, by forcing that person to do the opposite of the course adopted by the other mem bers of the group. There seems to be almost nothing that we can extract from Blau's reformulation of Arrow's work which is immedi ately applicable to distributional ethics, or indeed, to welfare economics. The main purpose of including it here is to show that a change in the number of alternatives (plus some rather strong additional assumptions) can show one way, at least, around the strict rigor of Arrow's ana3y- sis. A lesson from Arrow and Blau. One interesting and important precept to be learned from the rigor of these two analyses is that as Arrow shows, it is not wise to assume social harmony, and as Blau shows, it may be quite difficult ^If s?Ps® for everyone but Adam, and necessarily for Adam s§PsJ, the resulting consistent social ordering is S^IS2* society is indifferent between sets 1 and 2. *+79 to attain it. III. IRRATIONALITY, THE LEVEL OP NATIONAL INCOME AND THE SOCIAL WELFARE FUNCTION Increasing the Level of National Income In the world of today, particularly in the United States, it is not uncommon for discussions of distributive justice to be given short shrift owing to the widely held sentiment that ever-rising levels of real national income— more for everybody— obviate concern for its division. One reason that a larger aggregate income is often thought of as mooting the question of justice in income distribution is the failure of many economists and laymen alike to con sider the interdependency of personal utilities. However, it is a commonplace in economics that a very real obstacle in the economizing process is consumer irrationality. Con sumers are afflicted by, among other things, the predisposi tion to greed and envy. This is certainly not a new though one of the best known treatments of the subject being that lf2 of Thorstein Veblen. The Problem of Envy In the late 1890* s, Veblen was noting, with biting Thorstein Veblen, The Theory of the Leisure Class (New York: Mentor Books, The New American Library, 1958)• >+80 commentary, the proclivity of the American citizenry, par ticularly those living in what he considered the effete Bast, for "pecuniary emulation" and "conspicuous consump tion." Some consumption, Veblen noted, was for no other purpose than ego maintenance. Emulation or envy— the "race for reputability"— causes consumers to vie with each other 1+3 for the honorific possession of goods. Veblen*s observation is consonant with the possibil ity that a larger real gross national product will not pla cate a community dissatisfied with the distribution of income. A community may feel itself to be worse off if a profusion of goods and services leads to a preoccupation with material values. Envy may grow so strong that it may become quite difficult for members of a lower income group to keep up with the pace-setters in an upper income group, and a great morass of unhappiness may be unleashed in an economy of high production and haut monde tastes in con sumption. In a society attaching great importance to achieve ment, particularly to achievement as measured by personal income, it is not surprising that an individual will feel that his own personal satisfaction depends not entirely on whether he is justly rewarded for the work he performs, but ^Ibid., pp. 33~*+0 b8l also whether he Is justly rewarded In relationship to the income of his neighbor. The Duesenberrr Type of Welfare Punetion When an individual makes an ''invidious comparison," to use a Veblenesque term, between his own income and that of his neighbors, we may conclude that an individual wel fare function (or utility function as used in this disser tation) of the form, = f^Cs, y), where s is the produc tive service the individual offers and y is his income, is incomplete. A so-called "Duesenberry" welfare function may be more appropriate in allowing for the incomes of others Mf to enter into the welfare function of one individual • For example, Adam's welfare function may be made up of com ponents of the welfare function above, but may also depend upon David's income, so that we may writes Ua * fa(sa, ya, yd). Similarly, for Davids Ud * fd(sd, yd, ya). We should bear in mind that while Adam's utility is an increasing function of his own income, considerations of envy cause it to be a decreasing function of David's income. In the manner of Veblen, and also of Duesenberxy, let us suppose that the welfare of consumers is affected by their own income and the incomes of members of higher ^James S. Duesenberxy, Income Saving, and the Theory of Consumer Behavior (Cambridge s Harvard University Press, 1$W, p. 97. (Vol. LXXXVIII of the Harvard Eco nomic Studies.; * f 82 income groups. Therefore, people are not concerned about changes in the incomes of those persons belonging to lover 1*5 income groups. Assuming David to have the higher income status, we can write his utility index as Ud = fd(sd, y^), but for Adam, since he makes "invidious comparisons" between himself and David, we must write: Ua * fa(sa, ya, y^). Let us now suppose that David's income rises. Since Adam* 8 sense of satisfaction is a decreasing function of David's income, his utility index will decrease. Nov, suppose that by working one more hour every day, Adam can equal David's income. Whether the equality of income will bring Adam's utility index up to its previous level will depend upon whether the added utility of the income from one hour's more work is sufficiently great enough to offset the added disutility of working one more hour every work day. If Adam's utility index comes back up to its previous level, or perhaps exceeds it, the marginal rate of substi tution between income for himself and David's income will be negative as Duesenberxy has indicated This marginal rate of substitution is given by the equation: 9t&/9JA ^^Wd " »fa/*ya . pp. 20, 25-32, 101 ^ Ibld.. p. 99. If Adam were to be affected unfavorably by the necessity of working another hour to keep up with David, the sign of the 1+7 ratio would be positive* Ethical and Social Considerations If Adam is inspired to work harder or longer because he wishes to keep up with David and finds satisfaction in doing so, it would seem that we have a personally and socially desirable result. Presumably the total output of the community is increased as Adam works harder, and Adam himself benefits from the result through his increased satisfaction. He has been stirred to work harder by emula tion. This is in keeping with the spirit of the "invisible hand." Suppose, however, that Adam finds it impossible to gain enough income to offset the disutility of the work he must do if he is to keep his standard of living in the desired relationship with that of David. Instead of feel ings of satisfaction, feelings of envy, frustration, and 1+7 The sign of the fraction would be negative in the favorable case, because the initial change in Adam's wel fare would be a decrease (-) caused by the increase in David's income. If the change in Adam's income (aya) is sufficiently large enough to compensate for the loss of utility to Adam caused by p yd, the sign of sfa will be posi tive, and hence the sign for the whole ratio will be nega tive. If, on the other hand, ?ya is not large enough to compensate for the loss in welfare occasioned by ayg, the sign of 0fa will be negative and the sign of the entire ratio will be positive. i f 8i f discontent will arise. If we Multiply the number of Adams and Davids so that they represent the classic dichotomy between the "haves" and "have-nots," then we have the setting for much of the social discontent familiar in the pages of history. We now turn to a consideration of the relationship of justice to these observations. If all the Adams and the Davids are being paid according to their marginal productiv ity, the old economists Thomas Nixon Carver and John Bates Clark would tell us that the problem of justice has been solved. Assuming that this is justice, there is no neces sary reason to suppose that the have-not Adams will be placated unless they are convinced of the wisdom of the Biblical injunction against covetousness. But scriptual and other moral mandates are characteristically honored in their nonobservance; hence we are left with the problem and fact of envy as put by Veblen and Duesenberxy. A common reaction to feelings of economic discontent on the part of some individuals has taken the form of demands for a redistribution of the national dividend. The moral foundation of such, demands might possibly turn on the issue of how the "Davids" of society came by their envied position. If their greater productivity is the result of monopoly or bequests, a number of rather easy answers aimed at the breakup of monopoly power and the mitigation of i f 8 5 testamentary power are often prescribed. We shall not pause at this time to consider whether these measures are actually in the interest of justice or not. The question of the break-up of monopoly power is not an easy one, for much of the solution depends upon the way in which the monopoly was acquired. If the monopoly has been established by collusion, coercion, and the stif ling of competition, the answer is clear. It is less clear, if the monopoly is one founded upon economies of scale, innovations, or efficiency. It is not clear at all, if the monopoly is bestowed by nature, as for example the endow ment of a magnificent singing voice, or is created by the public, as for example the transformation of a mediocre voice into a valuable asset in response to a market paroxysm of adolescent bad taste. An often suggested remedy is to achieve income redistribution through the personal income tax, as has been bS M-9 noted by both Duesenberry and Samuelson. The form of the tax is a matter of great speculation. Quite possibly a tax may impinge upon the taxpayer's desire to offer his productive services. Moreover, the question of distributive justice is not met. All that this approach really considers 48Ibid., pp. 101-102. 1+9 Samuelson, "Social Indifference Curves," p. 13. if86 is the redress of grievances which may very well have their origin in injustice, but may also arise from the base emo tion of envy. Possible justification for a tar to redistribute income gained by a natural monopoly may rest on two grounds. If the monopoly is conferred by nature, it may be argued that since nature is a leading contributor to injustice, it is up to the social order, which is itself a means of organizing against nature, to rectify indiscriminate bestowal of natural advantages. If the monopoly is con ferred by the public, it would seem quite reasonable for the public to realize at least some of the benefits enjoyed at its hands. Before leaving this area of inquiry, we should con sider one additional problem. The increase in David*s income, which depresses Adam, may well be accompanied by an increase in Adam's satisfactions if David produces a good that Adam especially enjbys. Suppose that as a result of singing lessons David greatly enhances his earning power arousing feelings of envy in Adam, but this base response is more than overcome by the pleasure Adam incurs from hear ing David sing. If a tax could be imposed which would not reduce David's services, would it be just to impose the tax in order to redistribute some of David's income to Adam? One problem is that we really do not know how to define justice. If justice is the receipt of one's margined, revenue product, and we assume that all parties are thus compensated, then the question is easily answered, and any redistribution undertaken would not be in the interest of justice; it would be purely to placate community greed. But if justice is defined by the community as the absence of feelings of envy and discontent, such a tax-based redistribution would fall within the scope of distributive justice. We run again into the problem posed by Arrow, considered by Little, and answered by no one as to the source of a social welfare function. Is it imposed or is it democratically chosen? Belated to this, is the question as to whether the ethical code is absolute or relative. We do know that there is the trait of envy in human beings. Discontent is one thing, envy another. Separating a legitimate complaint from unjustifiable covetousness enormously complicates the task of assessing a just distri bution of the world’s goods. CHAPTER III ETHICAL FOUNDATIONS OF DISTRIBUTIVE JUSTICE I. THE ETHICAL OR "G-FUNCTION" Tliis chapter has two purposes. First, it forms a transition from the largely nonethical thinking of the previous chapters on welfare economics to the concluding chapter, the latter being largely ethical in nature* Second, it attempts to survey in a cursory manner some thoughts of ethicists on the matter of justice in the dis tribution of income. In an interesting discussion of the relationship of welfare economics to ethics, Kenneth E. Boulding has observed that welfare economics is being transformed from "a prolegomena to ethics" into a type of actual ethical theory.^ Welfare economics, says Boulding, attempts to add to the body of positive economics another dimension, namely economic welfare and thereby study a position of economic feasibility in which welfare, in some sense, is maximized. 1 Kenneth E. Boulding, "Welfare Economics," A Survey of Contemporary Econo»^ft»T ed. B. F. Haley (Homewood, Illinois: Richard D. Irwin, Inc., 1952), II, 32. h&Q ^89 Boulding notes: Ethics simply adds a further dimension (call It G for "good**), and discusses where in the feasibil ity function this variable is also in some sense maximized; for wherever it is not maximized there are possibilities of improvement.2 Separate consideration of Boulding* s "G-function" apart from the W-function would serve to unduly prolong and complicate this dissertation and seems to be unnecessary. Boulding, himself, accedes to this point of view in his statement: 111 have distinguished between the W-function and the G-function to allow for the possibility that duty might not be identical with interest."3 We shall attempt to deal with a social welfare function that comprehends duty and interest. One caveat should be emphasized, however. The task of finding the "good" of which justice is a part is not merely a matter of finding the "right" ethical criteria or the "right" philosophy. If it were, the task of the moral philosopher might have ceased long ago. II. WHAT IS JUSTICE? The welfare economics so far considered has converged on the issue of distributive justice, but has not really 2I*>id.t P. 33 3Ibid. confronted it. Now we consider the problem of justice squarely for the first time. Although the answer to the question, "What is jus tice?" is elusive, it has been essayed by some of the great est figures in the history of human thought. An extensive philosophical inquiry into the nature of justice is beyond the scope of this dissertation, but it will be most useful to consider briefly what has been said by several of the more important philosophers. We shall examine in cursory fashion three basic treatments of justice: Platonic justice, because it lays the foundation; Aristotelian justice, because it directly considers distributive justice; and finally utilitarianism, because it undergirds much, if not all, of welfare econom ics. Platonic Justice In one of the most famous of all disputations on justice, that of Plato's Republic. Plato depicts Socrates as asking his dinner companions what they believe justice to be. Polemarchos, a friend, suggests the definition put forth by the sage Simonides, that justice is giving to a k man his due. The process of regression leads to the ^Plato, The Republic, trans. W. H. D. Rouse, Great Dialogues of Plato, eoLs. Eric H. Warmington and Philip G. Bouse (New xork: The New American Library, 1961) , p. 129• b91 inevitable question, "What is a nan's due?” In the ensuing discussion, Socrates and his com panions quickly establish the inadequacy of Simonides* definition; but, far from resolving any questions, they become enmeshed in a discussion in which one of the discus sants manages to pervert the entire issue, and at the end of the banquet, Socrates confesses that he does not know 5 what justice is, and wonders if it is, after all, a virtue. In a subsequent discussion, Plato portrayed Socrates as attempting to study justice by considering it in rela tion to the political organization— the state. Now the idea of justice underlying so much of the later thinking on the subject appears; justice emerges when each class of citizens does that part of the community's work for which it is best suited without interfering in the business of the other classes.^ In the Republic. Plato delineated three basic types of states, each deriving their nature from the character of its ruling class. The three basic ruling classes are, according to Plato, philosophers, military adventurers, and businessmen. The state in which Platonic justice is most likely to prevail is that ruled by men of reason— philosophers. The state ruled by men of the second 5Ibid.. p. 15V. 6Ibid.. pp. 232-233* b92 class will be too much concerned with military pomp and dis play to bother with the requisites of justice. In the third type of state— that ruled by businessmen— there will occur precisely that type of conduct which Plato felt would not comport with his idea of justice; people would attempt to do that for which they are not ideally suited. It is in this area that Plato runs afoul of democrats, for this third type of society is identified by the philosopher as being a democracy. Where businessmen predominate, thought Plato, the chief motive of the society will be gain. The motive of gain leads men to switch from one source of gratifica tion to another, leading people to meddle in one thing and then in something else with little regard to a purposeful 7 plan for living the good life. Obviously, in this context, Plato’s prescription for justice cannot prevail. "To implant justice," says Socrates in the pages of the Republic. "is to settle the parts of the soul [reason, spirit, and desire] so as to rule and be ruled together g according to nature. ...” To Plato, justice is the paramount concern of the state. It is of interest, in connection with a discussion of the social welfare function, to find that Plato felt 7Ibid.. pp. 232-2^5 8Ibid.. p. 2*+5. ^93 that the government should determine the opinion of its citizens by any appropriate means; public opinion may be justifiably formed— imposed— by the state itself.^ Whatever justice is, and however it is found, Plato's treatment of it is not very helpful. The considerations of justice found in the first portions of the Be public. written while Plato was a young man, ". . . lose them selves," wrote Hans Kelsen, "in sterile analysis of con cepts, in empty tautologies; they are more or less without result."10 By the time Plato had added the last chapter to his Republic, his concept of justice seems to have taken form. Although he discussed justice in the world to come , his concept is one of retribution.11 Plato intimately identi fied justice with the good. Therefore, Kelsen concluded that Plato viewed earthly justice as a technique for the realization of the good, with the state functioning as the coercive mechanism giving force to justice via retribu- 12 tion. ^Hans Kelsen, "Platonic Justice," What Is Justice? (Berkeley and Los Angeles: University of California Press, 1957), pp. 95-96. 10Ibid.. p. 98. 11Plato, op. cit.. pp. 393-^22. 12Kelsen, op. cit.. p. 101 b9b Reflections on Platonic .justice. Two observations about Plato's concept of justice are important to this dissertation. First, Plato repeatedly interchanged the idea of the good with the jnst, and ultimately concluded that although the good exists, and possibly can be known, it is inexpressible. For this view, he has been held to be by Kelsen a religious mystic.^ Second, Plato's philosophy of the individual and society appears to be the antithesis of the spirit which impels the modern scholar to search for the democratically chosen welfare function. Plato had no faith in the ability of men to govern themselves. He held the ordinary individual to be incapable of self-improvement. The "mass man" could only progress by being guided by his moral and intellectual superiors— the philosophers. "Philosophers must be kings and kings philosophers," is the familiar Platonic slogan. Plato was expounding the idea of an elite— an idea that has retained currency through the centuries. Consequently, he has been widely criticized as an intellectual forerunner of Western totalitarian politi cal systems, including Nazi Germany, although the British philosopher, C. E. M. Joad, has undertaken to defend him from this charge. Joad contends that Nazi Germany was an example of Plato's tyrant state, not his ideal state, for 13Ibid., p. 108 *+95 in the tyrant state, the ruler subjugates the people for lU- his, not their, satisfaction. The discussion contained in this section is not an attempt by the author to write off the Platonic conception of justice as having no application in our society. Plato's philosophy endures and forms an important part of current works on justice. James Gustafson points out that contem porary philosophers such as the Homan Catholic Jacques Mari tain and the Anglican V. A. Demand base their under standings of justice upon a moral lav of nature rooted in the classic tradition of Plato and Aristotle. Through Aquinas, the work of the Greek philosophers has become a 15 part of the Christian tradition. Aristotelian Justice We turn now to Aristotle, Plato's pupil, vhose writ ings have great importance to us for two reasons: first, he explicitly considered distributive justice, and second, he has had enormous influence upon scholastic philosophy, a philosophy which, in turn, often has been applied to dis tributive justice• l^C. E. M. Joad, Philosophy (Greenwich, Connecticut: Fawcett Publications, Inc., 1962), pp. 66-67. 15 James Gustafson, "Justice," A Handbook of Christian Theology. ed Marvin Halverson (New York: Living Age Books, 1950)» p. 192. *f96 Aristotle’s philosophy is a true metaphysics, in that it embraces the concept of (rod as a first cause and ultimate end— the absolute good.^“ ° In Book V of his Ethics. Aristotle asked, "What is justice?", and observed: . . . when people speak of justice we see that they invariably mean a state of mind which disposes them to perform just actions, and behave in a just manner, and desire what is just.1? Aristotle continued: In the popular mind the description 'unjust* is held to apply both to the ««n who takes more than his due and to the who breaks the law. It follows that the man who does not break the law and the man who does not take more than he is entitled to will be 'just.' *Just* therefore means (aJ0lawful and (b) what is 'equal,* that is fair.1® Aristotle's definition of justice as fairness is important to this dissertation in our consideration of a possible reformulation of utilitarian philosophy as a basis for mak ing welfare economics more meaningful in relation to jus tice • Lawfulness and equality are not the same, noted Aristotle; lawfulness is the broader concept. Lawfulness Hans Kelsen, "Aristotle's Doctrine of Justice," What Is Justice? (Berkeley and Los Angeles: University of California Press, 1957), p. 110. ^Aristotle, Ethics, trans. J. A. K. Thomson (London: George Allen and Unwin, Ltd., 1953), p. 139. l8Ibid.. p. lifO. ^97 is perfect virtue. Approvingly quoting a proverb, Aristotle noted: "'All virtue is sunned up in dealing justly. *"19 General justice is the sane as righteousness. The particu lar justice of which he spoke is that described as fairness; it is a part of virtue. This dissertation is concerned with the smaller conception of justice, for under its heading, Aristotle discussed distributive justice. "There are two kinds of particular justice," said Aristotle, "distributive and corrective."2®’ 2^ In his discussion of distributive justice, Aristotle referred to his great principle, the "Golden Mean." The just Is the equal and since the equal is the nean, the just must be the nean, he reasoned.22 Distributive justice can be considered by reference to the mean, in that a distribu tive problem involves four terms in which, said Aristotle, "justice finds expression."2^ In a distributive problem, Oh there are two persons and two shares. By distributive justice and equality, Aristotle most 19lbid., p. l»fl. 20Ibid., p. lMf. 21 Corrective justice, according to Aristotle, is demonstrated in private business transactions; it "serves the purpose of correcting any unfairness that nay arise." Ibid.. p. lM-5. 22Ibid. 2^Ibid.. p. I*f6. 2** Ibid. **98 emphatically did not mean equality in distribution. The reason for this is that people are not equal. Awarding equal shares to unequal people is not the type of equality that Aristotle declared to be just. The equality that Aristotle propounded is an equality in the ratio between individuals and their shares. In other words, to return to our hypothetical distributees Adam and David, the value of the shares of income going to each, say, a and d, must bear the same ratio to each other as the values of Adam and David bear to each other, that is, A/D = a/d. When this equality holds, the distribution is just.2^ Implicit in the Aristotelian formula for distribu tive justice, then, is the principle that the relative worth or merit of individuals must be considered in a dis tributive problem. Indeed, Aristotle said: "It is admitted on all hands that in distributing shares justice 26 must take some account of merit•" He noted, however, that "merit" is a quality upon which men cannot be expected to agree. Aristotle has provided us with a succinct formula for achieving distributive justice, but we have no numeri cal substitutes for the human elements of his equation. It 25Ibid., pp. I*t6-lif7 26Ibid.. p. I*f6. ^99 is not only the application of the formula that ia appar ently hopeless, the principle Itself is virtually meaning less , for as Hans Kelsen wrote, in commenting upon the divergencies in opinion as to the merit of' the distributees: . . . his [Aristotle's] moral philosophy is not capable and considers itself not competent to answer the question which . . . criteria is the just one. This, however, is the very question of justice.2? Kelsen asserted that Aristotle left the decision as to the relative merits of the distributees to the positive law. The law, in defining merit according to its own mean ing, makes of justice nothing more than legality. Kelsen held that Aristotle merely returned to Plato * s original 28 declaration that justice is to each his own due. The very heavy influence of Aristotelian ethics in the approaches to distributive justice of J. B. Clark and T. N. Carver is quite evident, but these two economists most definitely did not answer the question of what justice in distribution consists. Kelsen suggested that Aristotle was rather unhappy with his own doctrine of justice and tended to replace the "empty idea of justice by the more substantial idea of 27 Kelsen, "Aristotle's Doctrine of Justice," p. 128. Italics mine. 28Ibid. 5oo peace.'1*^ In Book VIII of his Ethics« Aristotle wrote: • . . it is pretty clear that those who frame the constitutions of states set more store by this feeling [friendship] than by justice itself. For their two prime objectives are to expel faction which is inspired by hate, and to produce concord-- concord being friendship. Between friends there is no need of justice. . . .3° The word that Aristotle used for friendship is philia— brotherly love. Ultimately, Aristotle defined brotherly love as the chief virtue. Both the Christian religion and Aristotelian philosophy agree that in the presence of brotherly love, there need be no concern for justice. Utilitarian Ethics No group of philosophers ever has been so intimately identified with economic science, particularly British economic science, as the utilitarians. Some of the most commanding figures of economics and utilitarianism are the same people: Jeremy Bentham, J. S. Mill, Henry Sidgwick, and, through Sidgwick, Alfred Marshall. The fabric of wel fare economics is permeated with hedonistic utilitarianism, and this is one of the chief reasons why most forms of wel fare economics completely miss the mark in respect of jus tice . Hedonistic utilitarianism prescribes the pursuit of 29lbid.. p. 132. ^Aristotle, pp. cit.. p. 228. 5oi the general happiness as the proper course of conduct Although happiness Is one widely accepted goal of human conduct, It Is not the only one, Indeed It Is not the high est, and may very well conflict with the higher goals sought by the human race. Hedonistic utilitarianism, once extremely Important in the moral philosophy of the nine teenth century is accepted by very few important philoso phers in the twentieth, the British philosopher A. C. Ewing 32 tells us. However, it is the position of the author of this dissertation that contemporary normative economics is so permeated by hedonistic utilitarianism that welfare economics, for example, is precluded from treating of ques tions of justice or other forms of the good which may be conceived of as being superior to happiness. Hedonistic utilitarianism does, however, represent an improvement on egoistic moral philosophy, for it holds that the welfare of any other person is just as worth-while as our own. Therefore, it proposes a course of action to increase the general happiness by a distribution of welfare such that the individual welfares when summed would give the largest possible aggregate total. This may mean racing ^William Lillie. An Introduction to Ethloa (London: Methuen & Co•, Ltd•, 19ol), p. 16^. 32a . C. Ewing, Ethics (New York: Collier Books, 1962), p. 37. 502 one person somewhat worse off to make another very much better off. Therefore, the utilitarian could support a redistribution of income from the rich to the poor, if the increase in the happiness of the poor would so overbalance the increase in the unhappiness of the rich, assuming the sum of welfares and disvelfares to yield a positive incre ment in total welfare. The Pareto optimum embraces this utilitarian ethic with caution, for it asserts that we can not make comparisons between individuals; therefore it makes the attenuated assertion that a redistribution of welfare should occur only when no one is made worse off when anyone else is made better off. The bolstering of the Pareto criterion by the various compensation schema, dis cussed in the two preceding chapters, enhances the useful ness of the Pareto criterion, and, at the same time, returns more approximately to the hedonistic utilitarianism infus ing the whole theoretical construct. We shall argue that utilitarian philosophy, as exem plified in the work of J. S. Mill and Henry Sidgwick, is incapable of dealing with questions of justice, and that it is this philosophy which undergirds most of welfare econom ics as presently constituted. Therefore, the conclusion is that utilitarianism must be either reformulated or abandoned before further progress can be made in normative economics. We use Henry Sidgwick*s ethics, for his utilitarian 503 theory of justice, "merits special attention," says Frederick Olafson, "because of its affinities with philo sophical procedures that are much in favor at the present time."^ Addressing himself specifically to the matter of distributive justice, Sidgwick modified the Aristotelian criterion of equality or proportionality, saying: Ideal Justice, as we commonly conceive it, seems to demand that not only Freedom but all other bene fits and burdens should be distributed, if not equally, at any rate justly,— Justice in distribu tion being regarded as not identical with Equality, but merely exclusive of arbitrary inequality .3*+ After making this statement, Sidgwick undertook the task of finding the highest ideal, the search for that which wel fare economists might call the "social welfare function," Sidgwick began by examining what he felt was a general ethical proposition in society, namely that men ought to be paid what they are worth. He agreed that the "Requital of Desert" is the chief element of "Ideal Jus tice," and then proposed to examine "Good Desert" or "Merit.He asked the question which Carver and Clark 33pre^eriC} C x. Olafson, Justice and Social Policy (Englewood Cliffs, New Jersey: tx*entice-Hall, Inc• , 19ol) , P. vi. ^Henry Sidgwick, The Methods of Ethics (seventh edi tion; Chicago: The University of Chicago Press, 1962), pp. 278-279. 35ibid.. PP# 279-280. 36Ibid.. pp. 279-288. 5 o»f attempted to answer using the marginal productivity princi ple, that is, how is the fair reward to be defined? But, wiser than either of the two American economists, he rejected market value as the standard of desert saying: At first sight it seems plausible to urge that the 'market value* represents the estimate set upon anything by mankind generally, and therefore gives us exactly that 'common sense* judgment respecting value which we are trying to find. But on examination it seems likely that the major ity of men are not properly qualified to decide on the value of many important kinds of services, from imperfect knowledge of their nature and effects. • • .37 Although Sidgwick rejected the "common sense” or market determination of justice, he likewise repudiated the conviction of those who, despairing of the market appraisal of the value of goods and services, demanded distribution upon the basis of intrinsic value or what he called the "Socialist Ideal.” There is no way to judge intrinsic worth, he observed, and added: We have, in short, to give up as impracticable the construction of an ideally just social order, in which all services are rewarded in exact proportion to their intrinsic value.3° Having disposed of a number of roads to justice as impracticable, Sidgwick then turned his attention to a practicable or utilitarian philosophy of justice. The main 37Ibid., p. 287. 38Ibid., pp. 289-290 50 5 39 requirement Is the avoidance of arbitrary Inequality. The proper basis of reward, Sidgwick held, is the full requiting of merit. This tenet, he claimed: . . . is broadly in harmony with Utilitarianism, since we obviously encourage the production of general happiness by rewarding men for feliclfic conduct; only the Utilitarian scale of rewards will not be determined entirely by the magnitude of the services performed, but partly by the0 difficulty of inducing men to perform them. Utilitarianism, argued Sidgwick, shows the way in which competing interpretations of justice may be resolved. The utilitarian merely weighs one set of advantages against ^l the other and decides for the preponderance. Sidgwick, then, epitomizes the utilitarian position in moral philosophy: justice can be derived from considera tions of utility. Theories of Welfare Economics as theories of Distributive Justice If any theories evolved within welfare economics are considered to be expressions of Sidgwick*s ethical princi ples, they might be construed to be theories of distributive justice, for Sidgwick specifically held that the concept of justice can be derived from the principle of utility. Most 39Ibid., pp. 278-279 ^Ibid*, p. Mt6. ^ Ibid.. p. Mf8. 506 of the worses in welfare economics are heavily grounded in concepts of utility, and yet they are not put forth as explicit theories of distributive justice. Thus, the ques tion arises whether this omission derives from the failure of the authors to recognize the philosophical basis of their own work, or whether they consciously realize that hedonis tic utilitarianism cannot provide an adequate principle of justice. If hedonistic utilitarianism is the philosophy of the authors, then they may have produced works on dis tributive justice, and the literature of distributive jus tice is thereby enormously enlarged. If the utility prin ciple is felt to be defective in so far as justice is con cerned, then we have little, if any, amplification of the principles of distributive justice in the literature of welfare economics, end much work remains to be done. As has been noted previously, philosophers now genez^- ally feel that the utility principle cannot adequately com prehend the concept of justice. In utilitarianism, the "ought" is swallowed up by the "is," as MacKinnon says, and therefore: . . . in government notions like justice and liberty must at least be eclipsed and over-shadowed by that of the greatest happiness; they cannot be allowed co-ordinate, let alone superior, standing. For after all are they not . . . in some sense metaphysi cal standards? Against such the thorough-going 507 1+2 utilitarian has set his face, . • • Ewing, in condemning utilitarianism for its incom patibility with the requisites of justice, notes that the utilitarian view requires that any distribution of welfare, no matter how unfair, must be favored if it would produce 1+3 the slightest additional happiness, Nowell-Smith says, "It is notorious that utilitarian theories of justice have great difficulty in explaining the duties of special obli- M+ gation." If the utility principle is to be utilized in an approach to welfare, some reformulation in the methodology of welfare economics is called for. Let us now examine some of the work that has been done to bring the utility principle closer to the problem of an ethical distribution of well-being. Ideal utilitarianism. The British philosopher, G. E. Moore, is primarily responsible for the development in utilitarian ethics known as ideal utilitarianism. D. M. MacKinnon, A Study in Ethical Theory (New Yorks Collier Books, 1962), p. 51. L|.o Ewing, op. cit., p. 1+1+ P. H. Nowell-Smith, Ethics (London: Penguin Books, 1959), P. 232. 1 + 5 yG. E. Moore, Principle Ethica (first paperback edi tion; Cambridge, England: Cambridge tfhiversity Press, 1962), pp. 183-225. 508 Moore did not follow the blatant utilitarianism which calls for the production of the maximum amount of happiness, nor did he feel that conduct to produce happiness will be most conducive to the establishment of the general welfare. In ideal utilitarianism, justice itself may be taken into account as a course of conduct productive of happiness. Thus, we see one avenue by which Boulding’s "W-function" and M(x-function" may be combined in a single concept. Justice (a part of the good) may be incorporated into a general context of welfare. According to Luther J. Binkley, Moore argued that the course of action most likely to produce the good would be shown empirically to be the proper one. What is the "proper" or "best" course of action seems to be defined by intuition, although Moore held the good to have an exist ence of its own. The "best" course is to be found in cer- k-7 tain states of consciousness. In the next chanter, a study using ethical postulates derived from ideal utilitar ianism will be considered. John Rawls: Justice as Fairness The American philosopher, John Bawls, has developed Luther J. Binkley, Contemporary Ethical Theories (New Yorks The Citadel Press, 1961), p. 16. *»7Ibid.. p. 17. 509 an interesting theory of justice which the author of this dissertation will attempt to apply to the issue of distribu tive justice in a later chapter of this study. bQ Bawls attempts to define justice as fairness. That justice is not synonymous with fairness might be con sidered surprising by some persons, but Bawls argues that the two are not considered to be the same in classical utilitarianism. The justice of Bentham and Sidgwick, as exemplified Lq in welfare economics, is efficiency. 7 Bawls points out that utilitarianism begins with the tenet that aggregate happiness can be represented by a social utility function composed of the sum of individual utility functions of equal weight. The prima facie case for equality in income distribution is derived from coupling this idea with that of the principle of diminishing marginal utility. Thus, says Bawls, it appears that there are ways of expressing 50 the principles of justice in the language of mathematics. It is important to note here that Bawls feels that the desertion of cardinal utility for the ordinal system by ^Sjohn Bawls, "Justice as Fairness," Justice and Social Policy, ed. Frederick A. Olafson (Englewood Cliffs, Few Jersey: Prentice-Hall, Inc., 1961), pp. 80-107. ^Ibid., pp. 98-99* ?QIbid.. p. 100. 5io welfare economists in no way removes the newer analysis from the deficiencies attributed to the older form, for the ordinal analyses of Hicks, Arrow, Little, et al.. assume, as does the older cardinal utility approach, that individ- 51 ual preferences have value as such. Classical utilitarianism, declares Rawls, causes justice to assume the nature of a "higher order administra- 52 tive decision." Persons are merely separate directions to whom separate benefits and burdens may be attached; the values of their desires are not held to depend upon any sort of moral relation which individuals bear to each other nor upon the type of claims they put forward against each other. The form of the "administrative decision," says Rawls, is much like that involved in distributing charity to indigents on the basis of the urgency of their wants. Utilitarianism does not regard individuals receiving bene fits as being related. Limited resources are allocated between them solely on the basis of their preferences as individuals. Morality is severely downgraded, for as Rawls says: The satisfaction of desire has its value irrespec tive of the moral relations between persons, say as members of a joint undertaking, and of the 51Ibid. ?2m a .. p. ioi 511 claims which) in the name of these interests) they are prepared to make on one another; and it is this value which is taken into account lay the (ideal) legislator who is conceived as adjusting the rules of the system so as to maximize the value of the social utility function,53 Rawls* principles of justice. A striking example of the deficiencies of utilitarianism as applied to justice is illustrated by Rawls in pointing out that for the utilitar ians to assert that slavery is unjust, they must argue that the advantages to the slaveholder do not counterbalance the disadvantages to the slave, and possibly to society, but under a thesis holding justice to be fairness, slavery is always unjust, as the reciprocal relation would be unsatis factory to slaveowners. The principles creating slaves 5L. cannot be mutually acknowledged.^ Rawls* conception of justice is built upon two prin ciples. The first is that each participant in an activity possesses an equal right to the most extensive liberty not infringing upon a like liberty for everyone. The second is that any inequalities are condemned as arbitrary unless they work to the good of all, and that the sources of any inequalities are accessible by everyone. x Any inequality 53Ibid. ^ Ibid.. p. 102 ^Ibid., p. 81. must be justified by the principle that everyone benefits from it* The main modification which Rawls makes in the basic utilitarian philosophy is to condemn as unjust any inequalities that are defended on the basis that the advan tages of one in a certain position are greater than the dis advantages of someone in some other position.^ Prom time to time, the individuals in a going society will have various complaints against each other. They must arrive at procedures to settle differences. Eveiyone will be required to make a firm commitment in advance. so that no one will be able to frame the rules to suit a special purpose, or to abandon the rules when they hinder the attainment of an individual end to the detriment of other 57 persons• Cases of justice arise, says Rawls, when individuals press their claims on each other. A fair balance or equi librium must ensue. Morality requires that rational and self-interested people must act rationally in understanding that the rules apply to one's own conduct as well as that to of everybody else. The implementation of morality depends upon a commitment in advance. Therefore, it is expected 56Ibid., p. 83. 57Ibid.. p# 87. 5®Ibid. 513 that one can acknowledge the principles of morality even when they are personally onerous* As Bawls says, "A man whose moral judgments always coincided with his interests 59 could he suspected of having no morality at all." ^ The pertinence of Bawls1 theorem of justice * Bawls* work is highly important to this dissertation, for he formu lates a definite theorem of justice* This theorem holds that when mutually self-interested, yet interdependent, individuals confront each other in the circumstances of justice under the constraints of a morality which estab lishes the procedure by which their claims are to be judged, they will settle on Bawls* two principles of justice* Thus, Bawls concludes: • * * the aim of the argument is to show the basis for saying that the principles of justice may be regarded as those principles which arise when the constraints of having a morality are Imposed upon ratio^gl persons in typical circumstances of jus- Bawls* argument does not depend upon a social con tract or a general will. There is no agreement or general strategy. There is only an acknowledgment of some very general principles of judgment to be used in settling con flicting claims. 59Ibid., p. 88 60Ibid., p. 89 5lb Bawls' theory of justice is particularly applicable to distributive justice and more particularly to several recent works in economic ethics, for his thesis emphasizes fair conduct as fundamental to justice in situations of economic activity in which persons both compete and cooper ate with each other. Bawls* theory is of particular inter est to economic relations existing within the modem free society9 for as Bawls points out, the issue of fairness arises when free persons who have no authority over each other engage in joint activity and must decide how they as individuals are to share in the burdens and benefits of that activityIf* in some situation, individuals do not feel that they or anyone else is taken advantage of, or is forced to give in to illegitimate claims, they will regard that situation as fair. Mutuality is the key to Bawls' concept of justice as fairness, for free persons participating in an activity can face each other openly and support their conduct to each other if they operate on principles that are reasonable to expect that each other can accept. Bawls notes: Only if such acknowledgment is possible can there be true community between persons in their common practices; otherwise their relations will appear to them as founded to some extent on f o r c e . 61Ibid.. p. 93 62Ibid., p. 9b 515 Fairness consists in not making special rules and exceptions for oneself; it is not so much, says Rawls, breaking the rules or cheating Summary. Rawls summarizes his theorem of justice as follows: . . . the principles of justice may be thought of as arising once the constraints of having a moral ity are imposed upon rational and mutually self* interested parties who are related and situated in a special way. A practice is just if it is in accordance with the principles which all who par ticipate in it might reasonably be expected to propose or to acknowledge before one another when they are similarly circumstanced and required to make a firm commitment in advance without knowl edge of what will be their peculiar condition, and thus when it meets standards which the parties could accept as fair should, occasion arise for them to debate its merits.*" The consequence of this conception of justice is that a claim in violation of it has no moral value. When a claim violates conditions of reciprocity and the community of persons, the one pressing the claim cannot justify his action, and the one against whom it is pressed can legiti mately refuse to accede. Therefore, wants, interests, and tastes are not enough to determine justice; their advance ment may conflict with fairness. The sum of utilities, satisfactions or interests cannot be tallied up to determine 63Ibid.. p. 95 6lfIbid., p. 98 5l6 a moral outcome. Therefore, Rawls concludes that justice 65 cannot be regarded as an executive decision. Viewing individuals as having equally valid claims to satisfaction, conceals the error, says Rawls, of believing that the sat isfaction of desire has value in itself.^ This, of course, is the value judgment implicit in almost all of the litera ture of welfare economics— literature which many authors suppose to be wertfrei. The satisfaction of desire has value only in relation to the community of persons in which all participants have an equal liberty, and, in this con text, all practices, claims, and desires are prima facie unjust unless the individuals in society can acknowledge before each other that they are fair. The author of this dissertation believes Rawls' work to be well-suited to implementation in a consideration of normative economics. In the final chapter, Rawls* work will be integrated into a suggested approach to a theory of distributive justice. III. PHILOSOPHERS AND THEOLOGIANS ON MORAL ISSUES OP INCOME DISTRIBUTION Methodology and Ethics This dissertation has been concerned with the 6?Ibld.. p. 105 66Ibid. 517 attempts of economists to study the issue of distributive justice as well as their much more numerous attempts to skirt or ignore the issue. It has suggested that the basic problem is a philosophic one. But another problem is that of methodology: Can the methods of science be applied in the realm of justice? On this matter, Raymond Jaffe has written: . . . the decisive test of the ability of any method of reason to resolve conflicts of moral claims has been put in the question, Can the method justify a norm of justice which is univer sally compelling, logically and psychologically, that is to say, which has the force both of truth and authoritative command? What this test demands is not merely that it be demonstrated how rational methods can justify conduct as means to ends we desire, but rather that it be shown how rational methods can establish moral obligation, the conduct required by ends that are desirable because justified by a rationally required norm.®' John Dewey, according to Jaffe, devoted much of his life to a consideration of the problem of whether the method of experimental science could establish a standard of justice.upon which all scientists could agree, and this problem, says Jaffe, remained an unresolved conflict in Dewey*s mind.^8 6^Raymond Jaffe, The Pragmatic Conception of Justice (Vol. 3*+ of the University of California Publications in Philosophy. Berkeley and Los Angeles: University of California Press, I960), p. 9. 68Ibid. 518 In his study of the pragmatic conception of justice, Jaffe describes the so-called "interactionist" test of morality as being the growth or improvement of the moral inquirer, that is, the individual himself. This is a methodological norm. It is a norm requiring inquiry and problem solving. It requires a search for an ethic. Jaffe says that the growth of the individual should occur in his capacity for love or his concern for others affected by his conduct and in his ability to foresee the 6q the consequences of the acts necessary for such growth. 7 This criterion does not seem far from that of Rawls; both of them rest heavily upon concern for one's fellows. The search for justice is itself the only possibil ity. Justice, at least absolute justice, is an impossible ideal. Hans Kelsen has said: If the history of human thought proves anything, it is the futility of the attempt to establish, in the way of rational considerations, an abso lutely correct standard of human behavior, and that means a standard of human behavior as the only just one, excluding the possibility of con sidering the opposite standard to be just too. If we may learn anything from the intellectual experiences of the past, it is the fact that only relative values are accessible to human reason; and that means that the judgement to the effect that something is just cannot be made with the claim of excluding the possibility of a con trary judgement of value.'0 69lbid.. pp. 105-106. ^^Hans Kelsen, "What Is Justice," What Is Justice? (Berkeley and Los Angeles: University of California Press. 1957), p. 21. 519 That we can know any kind of justice— transcendental or relative— is only an assumption. Morris Raphael Cohen finally concluded that it all comes down to opinion. The task of the scientist is, however, clear; it is to find the 71 best available opinion. "Why Be Just?" The unanswerable question, "What is justice?", may not, after all, be important. The more important query may well be, "Why be just?" Both Rawls and Jaffe and the philosophy of Scholas ticism have urged that we must recognize the community of persons; Jaffe puts it more strongly when he says that the moral inquirer must grow in love and concern for others. In our society and time, the ultimate distributive injustice is to be denied access to the productive process. Distributive justice is tied to the very idea of being a person. An individual has no income and hence no real life apart from the productive process. This is a terrible real ity to the theologian Paul Tillich* The most important conflict which results . . . from the liberal economy is the conflict between the ovmers of the means of production and those who are dependent on the means but do not own them. . . I?2 ^•Morris Raphael Cohen. Reason and the Law (Glencoe, Illinois: The Free Press, 19oOTI ^Paul Tillich, The Religious Situation, trans. 520 The situation is forcefully epitomized in the concern of many workers over automation. They are afraid of being excluded from the productive process, the worst fear being that of inability to produce oneself, as Peter Drucker has pointed out. J Our technology, says Drucker, is a social 71+ order. Its interdependency forces us to recognize that one of the most terrible things to befall an individual is to be excluded from working with others. In an attack upon the problem of "Why be just?", Walter G. Muelder, a long-time student of the ethics of distribution, feels that, at the least, the condition of being bora gives every individual the right to stay alive. The claim each individual has is against soclety. The 75 correlative duty is shared by each person in a society. Those nations of the world most able to meet this claim, those of the West— are those in which it is most essential that the claim be met, for the industrially advanced nations of the world are the most internally interdependent. The H. Richard Niebuhr (New York: Living Age Books, 1959), pp. 109-110. ^Peter P. Drucker, The New Society— The Anatomy of the Industrial Order (New York: Harper and Brothers, I9V9), P. 10* ^ Ibid.. p. 19. ^^Walter G. Muelder, "Ethical Aspects of Income Dis tribution and Consumption," American Income and Its Use. ed. Elizabeth Hoyt (New York! Harper & Brothers, 1954)* P. 313. 521 individual finds it difficult, if not impossible, to be productive by himself. Most theologians and some philosophers probably would agree that the problem of justice arises out of the human condition. The philosopher John Rawls says that in a community of saints, justice is not an issue. All ques- 76 tions of right would be settled in a law of love. "Where there is no conflict of interests," wrote Hans Kelsen, "there is no need for j u s t i c e . " ^ Conflicts of interests are, however, the most pro nounced problems in an interdependent society of self- interested persons who must compete and cooperate in order to live. Out of this context, distributive justice emerges as an unavoidable problem. "The charge against our social system," wrote William Temple, Archbishop of Canterbury during the Second World War, "is one of injustice."^® The claim of the economically disenfranchised cannot be resolved satisfactorily by totalitarianism, for the totalitarian society denies the dignity and worth of the individual. Neither can paternalism and charity solve the problem as was poignantly enunciated by the slogan on the ^Rawls, op. cit.. pp. 90-91. ^Kelsen, "What Is Justice?", p. b. ^William Temple, Christianity and the Social Order (London: SCM Press Ltd., 195b), p. 19. 522 banners carried in the old British socialist processions: "Damn your charity; we want justice." Religion and Justice The tough-minded scientist or layman may be tempted to dismiss as impractical nonsense the thinking of theo logians who seemingly dispose of the hard problems of jus tice by prating about "love." The love of which the theo logical moralist speaks is quite often the philia of Aristotle. It is quite compatible with the theories of justice considered in this chapter. Temple has said, "... the primary form of love in social organization is justice."^ Muelder is more explicit: . . . from the perspective of Christian ethics the idea of justice must be informed by the larger idea of love. In the idea of the righteous ness of Cod many of the conflicting tensions in the ideal of justice are coherently resolved. So conceived, justice becomes a social norm in which equality and freedom are i n c l u d e d .”0 Re inhold Niebuhr, a theologian who has often con sidered the problems of economic justice, puts the substance of the inquiry of this dissertation very simply and directly: "The problem of politics and economics is the the problem of justice."®^- The work of the political ?9ibid.. p. 75. ^Muelder, op. cit.« p. 320. ^Reinhold Niebuhr, "The Law of Love in Politics and Economics,*1 An Interpretation of Christian Ethics (New York: Living Age Books, 19^6)> p. 128. Italics mine. 523 organization, thinks Niebuhr, is to channel man's conflict ing desires into some kind of order that man's need of mutual support may be fulfilled. Noting that this is some thing less than an ideal law of love, he observes: Tet the law of love is Involved in all approxima tions of justice, not only as the source of the norms of justice, but as an ultimate perspective by which their limitations are discovered.°2 The theologian offers the scientist no short cut to the discernment of a social ethic, for as Niebuhr declares: It is impossible to construct a social ethic out of the ideal of love in its pure form, because the ideal presupposes the resolution of the con flict of life with life, which it is^the concern of the law to mitigate and restrain Richard Talk, a scholar of the political and social philosophy of Paul Tillich (Protestant) and Martin Buber (Jewish) says that these two theologians hold: Man cannot escape his history by a pure vertical ascent (mysticism), nor by an individualistic affirmation of spiritual salvation unconditioned by material and social conditions (romanticism), nor by taking seriously a mere projection of a dream fulfillment (utopianism) William Temple put the matter in plainer language when he deplored the widespread belief that the church 82Ibid. 83Ibid.. p. 136. ^Richard A. Falk, Martin Baber Atid p«m! Tillich: Radical Politics and Religion (New York: The National Council of the Protestant Episcopal Church, 1961, Faculty Papers 5th Series), p. 21. 521* should promulgate a perfect social order for the reason that the church does not know what a perfect social order is. A perfect social order may mean that which would exist if everyone were perfect human beings, or it may mean that which would work best in our present society. Of these two alternative interpretations, Temple wrote: If [it is] the former, it ought not to be estab lished. If it is the latter, . . . there is no reag^n for expecting the Church to know what it Relevance of Philosophy and Theology to Normative Economics Christian and Platonic philosophjes agree that trans cendent justice— the justice that is the love of God— is beyond human understanding. It is, said Hans Kelsen, a 86 secret of faith. What, then, is the relevance to practi cal work— to economists— of that which Niebuhr calls an "impossible ethical ideal." Niebuhr suggests that its relevance consists of the positing of a goal and the reminder to man that he must reflect upon his finite nature. There is . . . no point in society from which one may not observe that the same man who touches the \ fringes of the infinite in his moral life remains embedded in finiteness, that he increases the evil in his life if he tries to overcome it without regard to his limitations. Therefore it is p p . cit.. p. 1*9. ®^Kelsen, "What Is Justice?", p. 13 525 impossible to know what is impossible as what is possible in the moral demands under which all human beings stand.07 Man can know only transitory and compromise solu tions, but this does not mean that all Interest in improv ing the social and economic order should be abandoned. The work of improvement is the only realistic possibility for distributive justice. Cohen joins in this point of view: The problem of justice is that of cleansing the social order of its black spots. This is an end less as well as a difficult task, because all we do is befouled by our inevitable error and folly. But life would be.unbearable without the effort at purification.0® The unremitting search for what must always be imperfect valuational criteria puts a most difficult, almost crushing, task upon man. Reflective man knows that he Is going to fail. Yet, the search for an ethic that matters is not a task for aysties; it is a task for the intellect. On this point, Niebuhr says: "Critical intelligence is a 89 prerequisite of justice•" ^ An Operational Ethic for the "Short Run" Much of the last three chapters of this dissertation 8?Reinhold Niebuhr, "The Relevance of an Impossible Ethical Ideal," An Interpretation of Christen Ethica (New York: Living Age Books, 1956), p. 123, ®®Cohen, op. cit.. p. 111. 89 Niebuhr, "The Law of Love in Politics and Econom ics," p. 1**7. 526 deals with the efforts of economists to find a democrati cally chosen social welfare function. The context of political democracy facilitates the task of finding the criteria of a just distribution of income. Democracy, Kelsen has observed, means freedom. This in turn means that there is no other form of government so favorable to 90 science. Economic science, no less than any other, must be free of political influence and be free within itself. What better context exists for gathering and working with the interpretation of ethics made by a free people? While the search for an ethic that matters goes on, we must live in something similar to that which economists are wont to call the "short run." Obviously, distributive injustices will continue to be many and, in some cases, severe. Inability to render justice within the economic order, calls neither for avoidance of the issue nor guilt complexes. It has been suggested that we adopt an ethic for the short run— a "situational ethic.” Situationism holds that a moral decision must be, as Joseph Fletcher explains, judged within a situation. "Means,” he says, "cannot be predetermined to be good or ^°Kelsen, "What Is Justice?", p. 23. 91 Joseph Fletcher, "Situational Ethics: A Note for Business Management," University of Washington Business Review. XX (October, I960), 18. 527 The ethics of situationism include most of the aspects of the problem of justice discussed in this chapter* Situationism, in that it arises from the writings of several theologians, assumes that there is a transcendental justice — that the surnmum bonun which is interpreted as being an absolute and unconditional God— exists, but in common with Kelsen* s thesis, it holds that the values of anything and everything else are relative to the situations and contexts in which they occur* What is good in one context may be evil in another* The author of this dissertation wishes to make it clear that he does not regard situationism as a panacea or some type of grand ethical synthesis. Situationism is strictly an emergency ethics. It is not an ethics upon which to build an enduring society* There are much greater ethical systems for this purpose. But while the work of building is going on, situationism is admirably suited to a dynamic economy in which everything is changing so rapidly that no guidelines can be developed and in which there are no precedents* Moreover, situationism is well-suited to the task of economists who are interested in the social welfare function; it is a "fact-finding" philosophy; it is 92 tempered empiricism. 92Ibid*« p. 25 Situationlsm is an unusual relativistic conception of value. It might he said to be a via media. It attempts to avoid the Scylla of the legalism which has plagued Judaism, Roman Catholoclsm, and Protestantism, and the Charybdis of the complete antinomianism— the thoroughgoing subjectivism— of existentialism. Situationlsm dees not look for mitigating circum stances. The situation itself makes an act good or bad. Thus, if abnormal profits persist in a society which values variety and product differentiation (real or imagined), situational ethics would not look for a balance of good or evil, but would be concerned with the situation of the economy— is it rich and can it afford waste, that is, is the persistent monopoloid profit "good” or "acceptable?" Situationlsm insists on the relativity of ethical decisions, as did Kelsen, because there are numerous sets of interests to be served. When we are commanded to love our neighbors as we love ourselves, we must remember that we have many neighbors. Pletcher illustrates this observa tion by citing the problem of the personnel manager who must choose between letting an ill assembly-line worker keep his job and yet must deal justly with piece-rate workers whose incomes depend upon the speed of each member of the work- team.^ 93ibid. 529 Justice is, indeed, giving each nan his due, says Q i i . Fletcher, and vhat is due each nan is love.^ But man appears incapable of the love which Scripture commands that he show for his neighbor, so that justice requires the use of the intellect, or as Fletcher puts it, "Justice is love 95 using its head." Situational ethics assumes that man will fall In his attempt to find an ethic that matters. But it does put the burden on man to face up to his responsibility in accord ance with Kelsen* s observation on the inevitability of a relativistic ethics. Situational ethics is not concerned about a consist ent or a nondictatorial welfare function. It does not dis courage an effort -to -rind one, for this is the essence of situationlsm. But in failing to find the "ethic that matters," or the "norm of unambiguous ethical content," situationlsm does not encourage the sort of despair and furtive intellectual by-passing that followed in the wake cut by Arrow’s Social Choice and Individual Values. Situa- tlonism accepts the ambiguities and inconsistencies in the life of man, especially in the life of the man of good will. ^Ibid.. p. 28 9^Ibid. 530 IV. CHANGING THE PHILOSOPHICAL FOUNDATIONS Changing the philosophical infrastructure of a wel fare economics can alter greatly the prescriptive impact of the social welfare function. Existentialism— A Digressive Argument To take an extreme case, if one embraces existential ism, the whole quest for the social welfare function may become a futile gesture. For example, Bochenski points out that all existentialists place scant, if any, value on intellectual knowledge as applied to philosophical purposes. True knowledge, say the existentialists, cannot be achieved through understanding, but only by the experience of real ity; the experience is the dread of which man becomes aware when he realizes that he has been thrust into the world and 96 condemned to death. There are a number of types of existentialist philos ophy, and the differences between the existential philoso phies of Martin Heldigger, Earl Jaspers, Gabriel Marcel, and Jean-Paul Sartre are many and deep. We cannot properly pursue, within the limits of this dissertation, the enor mous literature of existentialist philosophy, but in passing we should note the ethical consequences of the extreme form M. Bochenski * Contemporary European Philosophy, trans. Donald Nicholl ana Karl Aschenbrenner (Berkeley and Los Angeles! University of California Press, 1961), p. l60. 531 of realism which is Sartre's philosophy of existentialism. Sartre holds that man has no nature, no essence; he Is indeterminate. From such assumptions as these, Bochenski concludes that Sartre's philosophy is a theory of nonexist ence, that it denies objective value and law, asserts that human life is totally meaningless, that, indeed, death has no meaning, leading to the ultimate conclusion that there 97 is no justification for taking life seriously. In making this brief excursion into existentialist philosophy, the author is fully aware of the inadequacy of the consideration afforded it. However, the sole purpose of exploring, however inadequately, the new philosophies of existence, is to show the importance of the philosophical base to an analysis, particularly one involving ethics. By choosing Sartre's existentialism as our philosophy, our quest is over; existentialism, at least of the Sartrean type, has annihilated the concept of, indeed, the whole con cern for, the social welfare function. Scholastic Philosophy— The Present-Day Thomists We shall now consider a philosophy which does attach a deep meaning to human existence, and is vitally concerned with attempts to increase the welfare of both the physical and the spiritual man. This is the centuries-old Scholastic 97Ibid.. p. 181. 532 phllosophy• The earliest and the Boat notable economic contribu tion of Scholastic philosophy is the famous justurn oretlun 98 of Saint Thomas Aquinas* Just price, a salutary ethical idea based upon the simple notion that fraud is a sin, has been condemned as unworkable in a dynamic society, in that it calls for payment of that which is nothing more than the customary wage or price* Despite this criticism, a number of present-day Thomists have attempted to apply scholastic doctrine in and to normative economics* For example, Bernard W* Dempsey strives to show that the doctrine of just price is a useful 99 one in a functional economy. Dempsey denies that the medieval schoolmen divorced value from price and insists that the erroneous belief that they did is due to a number of poorly informed and superficial American writers on the 100 history of economic thought* Aquinas believed, asserts Dempsey, in the division of labor and that the product of the social economy should be devoted to the benefit of the 9&St* Thomas Aquinas, Summa Theologies, reprinted in Early Economic Though*- ed* Arthur fell Monroe (Cambridge: Harvard university Press, 1951), pp. 53-6*fr. ^Bernard W. Dempsey, "Just Price in a Functional Economy," Essays jy Thought, eds* Joseph J. Spangler and William S. Allen (Chicago: Band McNally A Company, I960), pp. *f5~59. 100Ibid.. pp. *fr6-*f7. 533 c o m o z i good. Private property is meant to promote and not impede this process In the evaluation of the worth of goods and ser vices, Aquinas did not favor governmental imposition of a standard; the valuational process should spring from the community, not simply from negotiations between buyer and seller alone. The emphasis of Thomistic philosophy is upon mankind living in society— a corporate entity. The exchange relationship, says Dempseys . . . must take place according to the community's estimate of the social utility of the two products because the producer who expects sustenance from society in return for his labor, by performing his function in the social organism, has earned his right to a just return. The factors which will normally determine the community estimate of social utility are labor, cost of materials, risk and carriage charges .102 Society is responsible for the justice of the dis tribution, and society must look to the worth of the goods or services being exchanged, and in its assessment, it should consider what things are needed to make the commun ity flourish. Scholastic philosophy indicates that the social welfare function is to be democratically selected, and we can logically add, that since Scholasticism springs mainly from Roman Catholic writers, the ethical criteria 101n>id.. p. 53 l°2lbid., P. 55 53** to be used are those of Christianity as revealed and inter preted by the Roman Church, That part of Scholasticism which is of Interest here is the view of society as an organic whole. Man is viewed as an individual, but it is only in society that he can live as a man. Economic relations are social relations, and, hence, are subjected to the dictates of justice. Heinrich Peach (185*»-1926). A fairly recent, and highly controversial, effort to apply scholasticism in a completely worked-out welfare economics is that of the German Jesuit, Heinrich Pesch. The extensive works of Heinrich Pesch are unavail able in English, and copies of the German text are quite scarce.Therefore reference is made to them indirectly 10*+ through the work of Abram L. Harris. Pesch has had little influence in the United States, although his work seems to be fairly well-known in Europe. Pesch's work is along orthodox Thomlstlc lines, in that he framed his theories within the corporate or organic view of society. Within society, the market is regarded as being incapable of evaluation and rewarding the productive ^^Pesch's contribution to welfare economics, the Lehrbuoh der n)rrmr>«+ m. comprises five volumes. Abram L. Harris, Social Reform (Hew York: Harper * Brothers, Publishers, 1958), pp. 308- 3Mf. 535 105 contributions of human beings. Therefore sons nonmarket method must be found to elicit what we call here the "social welfare function*" Pesch seemingly had in mind the distinction between ethical welfare and subjective utility when he noted two types of economies, the Volkswirtschaft and the Privat- wlrkschaft« literally the national economy and the private economy. The former is governed by the imposition of natural law, using "natural" in the sense of Homan Catholic theology, that is, the ordering imposed by God. The latter economy is dominated by personal or subjective considers- 106 tions. In an effort to establish a nexus between the so-called "private" and "national" economies, Pesch made a clear break between his system of welfare economics and those welfare economics heavily grounded in utilitarianism. The end of the economizing process in Pesch*s doctrine is decidedly not the maximization of want satisfaction but rather the establishment of a natural (i.e., divinely 107 „ ordained) harmony between the two economies. Pesch*s system does, therefore, comprehend a social welfare func tion. It is the Divine Will. The task for man is to 10gIbld.. p. 308. 106Ibid.. p. 312. 107Ibld.. p. 315. 536 discover the will of God, and in this quest, Pesch and his coreligionists hold that they are guided In the way of truth through the Holy Scriptures and in the interpreta tions and teachings of the Roman Church, Manifestly, this source of direction may be unacceptable to those econom ists and others who do not subscribe to the moral authority of the Church of Rome. In harmony with the principles of valuation outlined by Aquinas and amplified by Bernard Dempsey, Pesch con tended that valuation is a social process in which the entire community, not merely the buyers and sellers of a specific commodity, must be involved. Pesch tended to reject subjective marginal utility theoxy, for he believed that it is a dangerous doctrine morally, in that it leads 108 to individualistic evaluations. Although most orthodox economists scrupulously avoid the word "needs'1 when speaking of human desires, Pesch made the concept of necessity a vital part of his doctrine, insisting that "needs" be covered as part of just economic 109 relations. 7 Obviously, Pesch had an unusual concept of costs. Opportunity costs form no part of his theory. Cost is purely the expenditure of a producer plus the expense 108Ibid.. p. 319. 109Ibid.. p. 320. 537 justly due his personal effort. The "need" idea found in Pesch is, in Harris' judgment, that which is necessazy for one to maintain his appointed station in life,^° or it is simply the commonly held interpretation of the unabashed medieval doctrine of just price. Peach's definition of distributive justice has the merit of simplicity, whatever its other defects. The apportionment of distributive shares is just when payment is sufficient to ensure continued production, including provision for all contingencies, and when the owners of factors of production receive out of the productive process exactly enough to permit them to fulfill their appointed stations in life. There must be an equivalence between performance and counterperformance. This is justice in exchange.The influence of Aristotle is quite apparent• A question that cannot be dodged, is how would the social welfare function be Implemented? In a strictly theocratic society, or perhaps in a society where the Influence of the Church is vexy strong, as it was in the Middle Ages, the imposition of the welfare function nay be simplified. But in a society skeptical of ecclesiastical authority, in a system of theology in which the word of God 110Ibid., p. 321 111 Ibid.. p. 32»f Is diffusely and popularly interpreted, the method by which Pesch would impose a social welfare function seems to be merely the route of state intervention. If the market is not allowed to manifest subjective valuations, some form of authority must intervene to establish the terms of trade. It seems quite likely, then, that the apportionment of reward will be on the basis of whatever interests can cap ture control of the coercive mechanism of the state. The state that Pesch envisioned is truly a "corporativeM one, a cartellized society in which, says Harris, regulation is TT2 substituted for competition. This idea suggests why Pesch*s works have had greater influence in Europe than in this country considering the historic attraction of the cartel to the European businessman. Abram Harris is severely critical of the cleric's work. Harris feels that Pesch simply did not understand basic economics.11^ Harris contends that Pesch has stated nothing new to the vast bulk of economists when the priest asserted that market valuation is unjust. Pesch did indeed go further than most economists would in condemning the market as degrading, but the writings of the most thought ful economists reveal no Illusions as to the justice of 112Xbid.. p. 339. 113lbid.. pp. 312, 313, 319, 320, 322, 323, 32**, 539 the distributive shares accorded by the market. Harris objects to the way in which Pesch would correct the ethi cal derelictions of the market, these corrective actions being manifested in the coercive power of the state. He feels that Pesch merely substituted the ethics of power l im politic s for the disliked "ethic" of market competition. Harris identifies the great problem of Pesch*s wel fare economics as the decision-making function. He con demns Pesch for giving scant thought to the decision-making process and in being entirely unconcerned with where the ll1 ? center of power would rest. y Harris feels that Peach's doctrine is virtually reduced to an absurdity, in that under any system, the same group would make the deci- 116 „ sions. Harris apparently wonders why the decisions of one man as head of a private corporation of the American type should be less desirable than the decisions of the same man as head of a corporative arrangement such as a European cartel. Voluntary syndicalism, argues Harris, is the route to fascism.1^ The author of this dissertation agrees in large part 11>*Ibld.. p. 3»K>. ll5ai4-i p. 3**i. ll6IMd.. pp. 3*f2-3^3. 117Ibld.. p. 3Mf. 5^0 with Harris' appraisal of the economics of Heinrich Peach, Harris' exposition of Pesch's writings does convey the impression that the Jesuit scholar had a woefully inade quate grasp of what we call neoclassical economics. More over , judged on its face, Peach's writings do involve a corporatism, which apparently veers close to the form of economic organization practiced in interwar Italy. The conclusion seems inescapable that Pesch is seriously deficient in economics, and either naive or completely anti democratic and antiliberal in his approach to the political order. The author feels it to be a serious mistake to con sider Pesch* s work apart from the theological and philosophy ical setting in which it was evolved and to which it refers. Pesch was not writing in a moral vacuum. He was not writ ing about a nominally Godless state. He was writing about a political organization in which the moral teachings of the Church (in his case, the Roman Church) are given politi cal effect. Pesch*s doctrine is within the spirit of scholastic philosophy, and it is imperative to consider this in making an assessment of his work, if his work is to be given a fair interpretation. As was noted at the outset of this section, scholastic philosophy views human beings as being able to live as men only in society, and in this society men have certain duties toward God and toward each 5*fl other vhich can only be given satisfactory resolution in so far as all relations conform to Divine mandate. Man is the central focus of the material world, but he is subject to the will of God. There are three bases of criticism which may be alleged against Pesch. First, he either lacked understand ing of or ignored neoclassical economic theories. Second, his system is based upon the acceptance of a specific philosophy and, more importantly, a specific religious creed, which if rejected, must cause his total system to lack general acceptability. Third, his whole approach lacks the rigor of the customary treatments of welfare economics as well as being difficult to bring into compari son with the more usual welfare economics. Recently, a most interesting attempt has been made to bring welfare economics and scholasticism into a useful synthesis, and we shall now consider this contribution. Scholastic distributive justice and welfare econom ics. Stephen Worland has attempted to show that welfare economics can be interpreted so as to cause it to resemble ll8 the moral philosophy of scholasticism. Worland *s work is interesting in that it combines ^^Stephen Worland, "Justice and Welfare Sconomics," The Review of Social Economy. XVII (September, 1959)* 97- 5**2 within it three separate strands of thought: Thomistic just price, the Clark-Carver marginal productivity ethic, and the Paretian optimum. Worland takes as his starting point the strong ethos of the perfectly competitive economy underlying the reason- 119 ing of welfare economics. ' Worland feels the search for ethical values undertaken by most welfare economists is wrong in plan and execution. He is strongly critical of efforts to apply the compensation principle in an ethical vacuum. For example, he cites the work of William J. 120 Baumoi, as representative of the thinking that he dis parages, because, says Worland, Baumoi tries to produce normative conclusions that are value-free. Of attempts to find the social welfare function in the preferences of society, Worland says, in stinging rebuke: The similarity between an economics which allows the preferences of society to determine which pol icy measures ought to be adopted, a political philosophy which considers the will of the sover eign or the general will of the public an ultimate norm, and a sociology which treats a system of mores as a moral code is obvious. The first suffers the same deficiencies as the two latter. The author concurs with Worland and believeB that in the 119Ibid.. p. 99. 120yjjiHam J. Baumoi, "Community Indifference," Review of Economic Studies. XIV (19*f6-19^7), Mf-M5. 121Worland, o p . cit.. p. 101. 5*+3 above quoted passage, Worland has made a telling blow upon the efforts of many economists to produce the "ought” from the "is,” Worland strongly emphasises a basic distinction between two types of utilities. One type is that enjoyed by private individuals. The other is the aggregate social utility which he urges is definitely not the sum of indi vidual utilities. He notes that many welfare economists 122 hold a contrary opinion. Although, this may be regarded as being in conformity with the distinction Pesch drew between the private and national economies, it would seem more likely to be similar to the distinction which John C. Harsanyi makes between utility and welfare, a matter dis cussed subsequently in this chapter. Worland'8 essential argument, by which he estab lishes the nexus between welfare economics and scholastic philosophy, is that one must necessarily conclude from a study of the discipline that the economic system has a life of its own, that is, it is organic; it can produce utility apart from the utilities of those who comprise it. From this observation, he concludes that welfare economics is normative, that it does indeed, contain a basic ethic which is in agreement with Thomistic ethics. As he states its 122 Ibid.. p. 102. 5Mt Welfare economics, then, can be said to derive its conclusion from the implicit assumption that the function of an economic system is the satis faction of human needs .123 Welfare economics leads to an argument for marginal cost pricing. This principle would have more significance, Ipif says Worland, if P * MC is the just price. The applica tion of scholastic ethics to the marginal cost pricing principle transforms the tenet into a just price • Thus, argues Worland, welfare economics has finally come to the conclusion scholastic philosophers have held for centuries, namely that the benefits of social life must accrue to the 125 individuals composing society. ^ Privately owned goods must serve the common good. To do so, requires that they be properly allocated; if the P * MC rule is followed, resources will be allocated in the best interests of society* Similarly, wages would be equal to the value of the marginal product and, hence, just. The most obvious question at this point to Worland*s discussion is what distinguishes it from the Clark-Carver doctrine of distributive justice? The answer seems to be nothing, except that Carver and Clark had no consciously accepted underlying philosophy other than some generalized 123Ibid.. pp. 102-103. 12>fIbid.. p. 103. 12*Ibid. concept of property rights, whereas Worland supports his doctrine with a vast body of philosophic thought. There is, however, an additional difference; in Worland'8 treatment, the rule that producers should be rewarded according to their productivity is only a neces sary, not a sufficient consideration for distributive jus tice • The crude productivity theory of distributive Jus tice leaves unresolved the perplexing problems arising from inheritance, the ownership of natural resources, and dif ferences in personal endowments. Worland proposes to answer these issues, but here his theory becomes very hazy, and, in the author's opinion, completely breaks down. For example, he returns to the so-called Catholic family living wage doctrine which provides, in general, that a man, regardless of the number of progeny he may have, should live as well as a bachelor who performs the same work. This misses the real question which is, how well should both live? Even more perplexing are the problems raised by units of productive factors which are not worth much. In answer, Worland asserts that a Just distribution on the basis of the marginal productivity rule requires that there be a Just distribution of property. 126Ibid.. p. 110. 9+6 When the distribution of property is just, the theo ries of welfare economics become theories of distributive justice. Then, says Worland, in a most empty conclusion, the decision must be made as to how resources are to be 127 distributed. After carrying the argument this far, he deserts the quest. His conclusion is that once we have an "extra-economic prescription" as to the just distribution of property, the use of the methodology of welfare econom- 128 ice will ensure justice in the distribution of income. Worland has merely pointed out that (1) welfare economics has an ethic, and (2) it is compatible with the ethicB of scholastic philosophy. In Worland*a welfare economics, the scholar must still look for the social welfare function, albeit one that determines the proper distribution of the ownership of productive factors rather than stopping at the distribution of income. V. ESTABLISHING A SOCIAL ORDERING Thft T«posed Social Welfare Function— fhe Universal Goodwill Most studies of the social welfare function have been made on the assumption of a democratic choice of the function, and nearly all of these studies have been made 127Ibid 5^7 without any apparently conscious realisation of the ethi cal foundations involved. One of the most outstanding exceptions to this observation is the work of Kenneth J. 129 Arrow in his Social Choice and Individual Values* In Chapter XI, Arrow's famous paradox was noted* One way of avoiding the parado^c is to assume an Imposed social welfare function* This may seem to be a negation of the idea of social choice, and yet it may not be if man is assumed not to be completely free in the determination of ethical values* In the philosophy of Immanuel Kant, one finds developed the thesis of a general will— an over riding ethic, perhaps analogous to the welfare contours discussed in the preceding chapter. Arrow has done a most thorough and brilliant exami nation of the implications of Kantian philosophy upon the selection or imposition of a social welfare function* His carefully worked out examination will not be repeated here, but it is worth-while to note the general approach used by Arrow* In the first place, it is important to grasp the fact that Arrow's work is presumably more susceptible to a relationship with ethical systems than welfare functions of the Bergsonian type, for Arrow's work deals with the ^ ^Kenneth J. Arrow, Social Choioe and Individual Values (New York: John Wiley * Sons, Inc., 1^51}. 9*8 value a held toy people, while Bergson* s function Is based upon taates. An individual's tastes determine how he orders social states which affect his own consumption. "Values" include considerations of an ethical nature as well as the effect of the external economies and diseconomies produced by one*8 (proposed) consumption pattern. Thus, Bergson's work seems more nearly related to considerations of the biological and psychological factors underlying choice- making, while Arrow's thesis is concerned with the ethical impact on choice-making, or, as he says of his work, the procedure in Social Choice and IndlT-iduAl Yaluea is to determine which Bergsonian social welfare function will be applicable .^3° As Arrow notes, trying to erect a social welfare function from individualistic value judgments is likely to be unsuccessful.^'3’ * ’ But if some type of consensus can be hypothesised, this may permit a social ordering. Arrow says: . . . complete agreement on the ordering of social alternatives may seem contrary to fact, but, properly interpreted, it is at the basis of a great portion of political philosophy— the idealist school.*32 13°Ibid.. p. 23. 131Ibid.. p. 72. 132Ibid.. p. 81. 9*9 One of the great idealist philosophies is that of Kant. Kant asserted that there are two imperatives: the hypothetical and the categorical. The hypothetical impera tive tells the individual to act in a certain way to achieve a desired result. The categorical imperative is an unconditional command. According to Kant, only the cate gorical imperative has ethical content .^3 The categorical imperative has an objective existence of its own; it ia the universal goodwill existing in and over society. It is the ultimate concept of the good for which mankind aspires, but which is missed because hnmnn beings are not fully rational. Economics has its counterpart of this doctrine, for econo mists postulate much of their reasoning on the outcomes of exchanges which would be realized if human beings were economic men, and economists assert that in the aggregate, rational economic behavior may be (hopefully) approached. Kant, as an idealist, asserted that ethical knowledge is a priori knowledge and cannot be found in empirical evi dence. Thus, he stands diametrically opposed to the real ists who believe that ethical knowledge can be found empirically. One of the most thorough-going advocates of 133Immanuel Kant, "The Fundamental Principles of the Metaphysics of Hn-mi m, * * »m Critique of Practical 'a***™ and Other Works on the Theory of fethics. trans. C, x. Abbott (sew York: Longman i i firnrn und ro . 17?j), reprinted in Loyd P. Easton, Ethiee. Policy. and Social Ends (Dubuque, Iowa: Vfn. C. Brown Company, 1$?5), pp. 162-163* the latter view is the French economist Jacques Rueff who argues that ethics is no different from the physical sci ences, and that ethical rules can be discovered by patient 13*t inquiry and rigorous analysis. A priori conclusions are proved by showing contradictions which would result if the conclusions are denied. Therefore Kant asserted the exist ence of the categorical imperative with his famous princi ple, "Act only on that maxim whereby thou canst at the same time will that it should be a universal law."1^ The essence of Kant*8 ethics is that one does good because doing good is the duty imposed by the universal moral law. The categorical imperative, says Arrow, corresponds some what to his concept of a social ordering.^^ Arrow adds that if the Kantian teaching that everyone must be treated as if he were an end in himself were followed, there would be no contradictions in a social ordering; the social wel- 137 fare function so produced would be satisfactory. Arrow Indicates that the Idealist position can be brought into harmony with his treatment of the social ^-^Jacques Rueff, From the Physical to the Social Sciences. Introduction to a Studbr of Economic and Sthical Theory.trans. Herman Green (Baltimore: The Johns Hopkins ^ress, 1929). ^^Kant, pp. cit.% p. 162. Arrow, pp. cit.. p. 82. ^ibid. 551 welfare function. The idea is not completely deterministic, for each individual nay be presumed to have two orderings. One ordering is that which he uses momentarily in his everyday life and which, owing to the imperfect rationality of human beings, lacks, to some degree, conformity with the good. The other ordering is the true or social ordering upon which all individuals would agree if they were per- 1 ^8 fectly rational. This is Kant's categorical imperative, and is analogous in some degree to the social welfare func tion. Arrow, himself, does not require the complete unanim ity found in the universal assent to a moral imperative, but he points out very clearly that without some sort of consensus on the ends of society, no social welfare func tion can be said to exist.'1 ' 39 The next question Arrow addresses himself to is the discernment of the moral imperative. This is an area fraught with unsatisfactory answers. Arrow tends to reject ethical absolutism, and yet he finds many shortcomings in li+O liberal ethical relativism. However, he indicates that he prefers the latter position, and argues that this is a 138Ibid.. pp. 82-83. 139Ibid., p. 83. lAf0Ibid.. p. 8*+. 552 viewpoint consistent with the democratic ethos* He says: . . . the case for democracy rests on the argument that free discussion and expression of opinion are the most suitable techniques of arriving at the moral imperative implicitly common to all. Voting, from this point of view, is not a device whereby each individual expresses his personal interests, but rather where each individual gives his opinion of the general will.1^1 In a consideration of the implications of the passage quoted above, Arrow holds that this amounts to pooling the opinions of a group of experts to arrive at a best judgment. In the case of the moral imperative, the individuals in society are held to be the experts in Iko detecting the goodwill. The Platonic or antidemocrat view would hold the determination of the general ethic to be a function of an elite. Arrow puts the prodemocrat view; all individuals are held to be the children of God; the majority can be trusted to better find the moral Ik * 5 imperative than a narrowly based elite. J The latter view is compatible with attempts to dis cover the good in liberal Christianity. A body, represen tative of the Christian constituency (e.g., a church general assembly), attempts to concur in a best opinion of what the good is. This practice is not incompatible with 1>flIbid.. p. 85. l42Ibid. 1>f3ibid.. p. 86. Kantianism, for Kant believed the good is to be discovered by rational mental activity, and, indeed, Kant has been referred to as "the philosopher of Protestantism," although this is probably only partially correct. Further Consideration of a "General Will"— the Work of Jerome Rothenberg Jerome Rothenberg, in a most ambitious book, The Measurement of Social Welfare, has produced a scholarly l»+5 attempt to escape the Arrow impossibility theorem. Community consensus. Ro thenberg considers the troublesome problem of deriving a consensus from voting procedures. Toting by the members of a community for a number of alternatives in the order of preference may lead to unresolvable differences between the members of society unless each individual's preferences lead to a curve having a single "peak" when the alternatives and their rankings are plotted for each choice-maker. If the condition of "slmgle-peakedness" is fulfilled, Rothehberg says that a social choice may be elicited using majority voting pro- 1**6 cedures. However, it is entirely possible, as Rothexfcexg 11+lfMacKinnon, o p . eit.« p. 83. llf^Jerome Ro thenberg, The Measurement of Social Welfare (Englewood Cliffs, Hew Jersey: Prentice-Hall, Inc., 1961). llf6Ibid.. pp. 281-295. 59* points out, that the condition of single-peakedness will not obtain. He does feel, however, that the more that is known about the alternatives, that is, the more rational the decision makers, the more likely it is that single- lb7 peakedness will occur. Single-peakedness is less likely if there are many or wide divergencies in the values held by individuals. This seemingly departs from the notion of the welfare func tion as having an objective existence of its own. However, Rothenberg says, "Differences in values (tastes) should lead us to expect . . . diversity in evaluating styles of life. It means that one man's values are another's fanati cisms."1^8 Quite likely, there are great divergencies in tastes; the same may not be true for morals, especially if all men were fully cognizant of all of the consequences of their actions. Rothenberg believes that conscious concern for the over-all distribution of well-being is likely to lead to single-peakedness. He says: . . . the conditions under which single-peakedness is most likely to be satisfied are: (1) the con cern (of the individuals of the group) about equitable distributions is so strong that it out weighs their concern for the idiosyncratic charac ter of their own wants; (2) the principles by which 1>f7Ibid.. p. 295. llf8Ibid.. p. 296. 555 they judge equity are shared by groups of varying sizes, and Individuals (including oneself) are treated in these principles as conventional ciphers with standardized wants rather than as unique creatures with idiosyncratic wants; (3) a single nethod for classifying benefits and their recipients, and the relative degrees of nearness of the recipients to one another cones to be employed by the adherents of' all the various points of view.1^ The author feels that it would be unwarranted to conclude that Rothenberg*s views are the same as those authors who distinguish between ethical and hedonistic decisions, but the passage does seem to establish a much closer area of agreement that might be otherwise inferred* Rothenberg does, in essence, ally himself with Arrow's position as to the necessity of some kind of con sensus for the determination of a social welfare function, when he declares: The denial that social values can be discovered in the welter of individual values leads to a position where no welfare criterion has any more justification for policy recommendations than any other. ^ Rothenberg asks the important question, "How does one discover whether or not a given set of values is in accordance with the values prevailing in the communi'ty?"^'^’ He notes that it is extremely difficult to state what the llf9Ibid.« p. 297 1^°Ibid.. p. 3 0 6 151Ibid., p. 301 556 prevailing values are. Are they the "highest common fac- 152 tor," the "average," the "least common denominator?" y He adds that it is possible to reject all three suggestions. Perhaps there are no prevailing social values and hence no social choice. Perhaps the social welfare function must be interpreted as the values of some individual or group of individuals, but this violates Arrow's requirement of non- dictatorship.^^ Ordering by an "external" source. In considering the problem of nondictatorship, Rothenberg draws heavily upon Little who, in turn, was reviewing Arrow's Social 1 fyU Choice and Individual Values. Little does not believe that Arrow's condition of nondictatorship causes much of a problem for the deter mination of the social welfare function. There is a dis tinction, says Little, between the case in which one member of the community determines a social ordering that is impossible for all of the rest of the members of the society to change by joint action (majority rule), and the case in which the social judgment opposes the individual 152Ibid.. p. 302. 153ibid.. pp. 302-303. 15lfI. M. L. Little, "Social Choice and Individual Values," The Journal of Political Economy. LX (October, 1952), 557 preferences of everyone in the community except one person. Little illustrates by supposing that in a three-man commun ity, Adam and David prefer I to Y, and Thomas prefers Y to X, but the social ordering is Y over X. Little then sug gests that the social ordering of Y over X suggests its "desirability," a condition which Rothenberg hotly dis putes. Rothenberg asks the incisive question, desirable 155 to whom? The social ordering cannot be desirable to Adam or David, since their own preference scales are to the contrary; if it is desirable to Thomas, he must be a dictator, yet Little maintains that this is not so* Rothenberg raises the interesting speculation that there must be more than three people in the community, and this third person issues the social welfare function, not for what he will receive from such a social ordering, but out of consideration for what the members of the community will receive. If the social welfare function is what the "fourth member" says it is, he is a dictator the community violates the premises of Little's argument. The author is constrained to agree with Rothenberg, in that Little*8 argument may reduce the quest for a welfare Seemingly, the suggestion of a fourth presence in i ^ Ibid.. pp. 30^-305. 558 function to triviality unless Little's argument is allowed to assume the character of a metaphysical discourse. In this case, Bothenberg's suggestion that there must be a fourth person in the community opens up interesting avenues of inquiry. The fourth presence might be conceived to be the line of duty laid down by Eant's categorical imperative, or the Deist could view it as the moral law emanating from God by which the temporary and faulty standards of men are condemned and corrected. Ascertaining prevailing values. Although Rothenberg declares that the only "demonstrably correct" resolution of the problem of finding a social welfare function is unanim ity in choice-making, the scant likelihood of this occur ring in the absence of the implicit acceptance of Kantian or theological considerations, causes him to open another line of inquiry. The proper course, Rothenberg argues, is to ascertain the community's prevailing values. He main tains that the reasonableness of this position depends upon the acquiescense of other scientists as to what are the pre- 157 vailing values in a community. Rothenberg believes that the plausibility of his approach depends upon three assumptions: (1) that a regu larity in values held within a society is empirically 157 J'Rothenberg, op. cit.« p. 309* 559 demonstrable; (2) that the regularity arises from attitudes about the locus of central decision-making; and (3) that the consensus of a community is essential to the continuity of its distinctive existence Rothenberg argues that there are discoverable pre vailing values in a society. He specifically rejects con sidering a value consensus to be something "mystical" such as Rosseau's "general will” or presumably like Kant’s "categorical imperative. ^ 9 However, Paul Streeten, in his review of Rothenberg*s book, maintains that Rothenberg*s work is an interpretation of Rosseau's general will, and moreover, says Streeten, the concept of a general will is not "mystical. Rothenberg begins his consideration of group choice by taking family choice as a starting point Noting that purchases generally are made on behalf of the family by some one person— usually the mother— he argues that these purchases reflect three distinctive types of choices. The first is the "errand choice"; the purchaser merely carries out the instruction of some member of the family. l58IMd., p. 316. 1^9ibid. l^Opaul Streeten, "The Measurement of Social Wel fare." American Economic Review. LII (Seotember. 1962). 82»*. ------------------------ 161Ibid.. pp. 312-315. 560 The second is "dictatorial choice"; the buyer decides what those at home ought to have. The third type consists of the "group choices"; choices made by the decider fall within a range of approved tastes for the family concerned. Bothenberg feels that the third type of choice-making is the most prevalent one within the family, and, more impor tantly, he feels that, in general, the fact that the family survives shows that there is an operative consensus within the family. Similarly, that society is functional, sug- gests to Rothenberg that a consensus exists. The con sensus exists because individuals share virtually the same values; they have been bom into a society which teaches them its values, and which rewards and punishes them in accordance with these values. The individual learns to expect certain modes of conduct from others and vice versa. The process is mutually self-reinforcing. Somehow, Rothenberg thinks that this reasoning avoids the issue of a "general will," never noticing that the problem of the of these values is not considered in his argument, or that it is this problem which was faced by both Rosseau and Kant. The important thing in the socialization process, thinks Rothenberg, is that the choice-making process itself l62n>id.. pp. 315-317. 561 becomes a value and engenders the creation of other values* Out of this process, alternatives are ranked according to their degree of social desirability. Within the society, different levels of valuation may exist, but there is a basic "social validation" of values which culminates in the social welfare function.3"^ The social welfare function as defined by Rothenberg is " • • .an empirical generalisation about the valuational l6h rule of the population at large." This rule must emerge from a consensus and must be fully discoverable. It per mits an individual to prefer A to B but to recognise that the preference of B over A has been socially ordained.1^ Rothenberg stresses that the social decision-making processes of which he speaks do not necessarily possess the power to transform society. The social decision-making institution may simply articulate evaluations of alterna tives, for example, "the clergy in a quasi-medieval envir onment • Rothenberg maintains that an Individual1 s negative response to a social welfare function does not mean that 163lbid. 16* *n>ld.. p. 318. l6?Ibld.. p. 317. l66Ibld.. p. 325. 562 a social welfare function is thereby rejected. Disagree ing with a social welfare function is not tantamount to a denial that the decision was elicited from decision-making l67 processes embodying the values of the community. Paul Streeten, in his review of Rothenberg*s work, sharply questions the latter's overriding concern for a 168 consensus. Streeten suggests that if one searches for a grand social welfare function, it is ridiculous to stop at a nation's boundary; one should try to find a social welfare function for all humanity. However, being skepti cal of anything as broad as even a national social welfare function, Streeten suggests that social welfare functions ought to be adduced for much smaller groups within a society such as barbers, Democrats, and Republicans. He questions Rothenberg's assumption that conflicts and strug gles ought to be resolved, arguing that they seem to be a normal part of life, and are possibly desirable. Assessment of Rothenberg's contribution. Rothenberg is not directly concerned with distributive justice • He is more interested in finding what the social welfare function is conceived to be, rather than in investigating its ethi cal content. In this dissertation, the inquiry is l67Ibid.. p. 333. l68streeten, pp. cit.. p. 82*+. 563 concerned with conceptions of justice included within a couunity ethic. We must, of course, consider how the values that natter are to be implemented in a democratic society of the Western type. The author feels that Bothenberg's most salient contribution to the literature of the social welfare func tion is not his rather vague prescriptions for the adduc tion of the function, but his breaking of the vicious grip of the "unanimity principle" which was stifling creative thought in the area. Much of the work with the social welfare function has been ingenious, but is not reflective of the way in which a Western political democracy works. Many econo mists, insisting upon an entirely unrealistic valuational cohesion, have postulated ideal and utterly sterile com munities of their own design in which "ethically" based economic decisions may be rigorously demonstrated by mathe matical procedures. The value of these procedures as mathematical exercises is not denied; they may have value in stimulating further thought. Quite possibly these logi cal systems represent the foundational work that must be done before a useful theory of the social welfare function can be developed. In the interim, we must not be so naive that we confuse the econometric methods and mathematical games now current in the journals of economics with the 56k way in which our democratic society implements the values which matter to it. The scientist cannot be more accurate than the con text in which he is working. The inconsistencies and vagaries of the social order mean that possibly the only appropriate way to work is within the context of generally prevailing values, and that if some indicators of prevail ing values seem to conflict, then some procedure, the less arbitrary the better, must be selected to choose the pre vailing indicator of the prevailing values. Therefore, the author of his dissertation concludes that Rothenberg*s main service is that he has broken away from the stifling grip of the unfortunate number of paradoxes that were beginning to accumulate in the literature, and that he opens the way to a more realistic and useful approach to the social wel fare function— an approach which is cognizant of the way in which a complex and diffuse political organization devoted to the ideals of Western culture operates. PlacovpHnf «■ Community Ethic by an Additive Principle "Utility" or "welfare?" Many discussions of welfare economics are quite ambiguous in the use of the terms "utility" and "welfare." In older or non-Paretian works, the distinction, although often not manifest, was neverthe less understood. Individual utilities were thought of in 565 terns of Benthamite satisfaction and were determined within the psyche of the Individual person. The simple summation of the utilities of Individuals was defined as the social welfare. As we have noted in the preceding section, more recent authorities have drawn distinctions between "tastes" and "values." "Tastes,” it is said determine, in part, the consumption patterns of an individual. "Utility" being the power of a good or a service to satisfy a human want, one's utility function expresses the tastes of an individual. An individual's "values" depend upon his moral or ethical code. The complete expression of an individual's value preferences may be said to form his own individual "social welfare function." John C. Harsanyi has attempted to clarify the dis tinction between utility and welfare by noting that although an individual's utility function and an individ ual's social welfare function express the individual's preferences, "they must express preferences of different sorts. "*-^9 The utility function, says Harsanyi, expresses sub jective preferences (tastes)— those preferences determined ^ J o h n c. Harsanyi, "Cardinal Welfare, Individual istic Bthics, and Interpersonal Comparisons of Utility," The Journal of Political Economy. XLIII (August, 1955), by the Individual'8 personal interests. The individual's social welfare function expresses what the individual wnnld (should?) prefer on the basis of impersonal social compari sons. Subjective preferences (those defining the utility function) express the individual's preferences as they actually are. Apparently, subjective preferences (utility) give rise to objective behavior, for Harsanyi says that they will show "an egoistic attitude in the case of an egoist and an altruistic attitude in the case of an 170 altruist." As to the social welfare function, Harsanyi says: [The individual's] "ethical" preferences (which define his social welfare function) will, on the other hand, express what can in only a qualified sense be called his "preferences": they will, by definition, express what he prefers only in those possibly rare moments when he forces a special impartial and impersonal attitude upon himself.171 Harsanyi feels that Arrow's distinction between "tastes" and "values" must necessarily itself lead to an impasse in that it cannot explain how an individual can accept a social welfare function conflicting with his own values without being inconsistent. The difficulty, says Harsanyi, is that Arrow's definition of "values" falls within the category of Harsanyi*s "subjective choice," 170 Ibid. 171 Ibid. 567 while Harsanyi *s own definition of "values" refers to purely ethical preferences. Harsanyi concludes that an individual can accept a social, welfare function in conflict with his "values" (the term being used in Arrow's sense), since the individual's own social welfare function is built 172 upon ethical and moral considerations. The necessity of dealing precisely with distinctions between utility and welfare forces one to be sympathetic with the haziness and imprecision of those writers who dis cuss both concepts either separately or jointly. There is a danger in attempting to split the human personality into fractions, that is, in trying to demarcate boundaries between the physical, psychological, and spiritual self, nevertheless, there seems to be a con siderable advantage for a study of distributive justice to proceed on the basis of Harsanyi *s distinction between utility and welfare. Those preferences giving rise to a utility function may be thought of as being basically biological and psychological in character. Obviously, biological and psychological "needs” do not exist separ ately, but are a blend or compound. They range from the very basic bodily needs of food, drink, elimination, etc., to the more complex biological needs such as sex, 172Ibid 568 protection, etc*, to needs largely conditioned by psycho logical considerations such as specific types of want satisfiers or particular wars in which wants are satisfied* An individual's social welfare function is, however, premised upon his moral or ethical code, which means that it must be primarily a philosophical matter. Although it may be argued that an effort to divorce philosophy from considerations of psychology and biology must fail, since the human personality is a totality, it would appear that often within the human personality the cleavage is attempted or is a real one, for obviously one's psychologi cal and biological urges need not coincide with one's ethi cal convictions. Neuroses, guilt complexes, drug addic tion, and psychoses, indeed the emergence of mental health as a major health problem would appear to bear witness to the difficulty with which some individuals integrate their actual behavior with their own moral code. The matter is one not within the limits of this dissertation, and we shall dismiss the issue by saying that within the context of this discussion, it appears expedient to separate util ity from welfare by holding that the former represents subjective preferences, and the latter expresses ethical preferences• Under this definition, it is possible for the expression of an individual's social welfare and utility 569 functions to coincide when the individual acts in a "self less" context, or at least in the mutuality which John Bawls describes as a situation of fairness or justice. From this definition of the social welfare function, it may be possible to construct an aggregate social welfare function which is determined by social welfare functions of individual persons. Cardinal welfare. In 1952, Marcus Fleming attempted the task suggested in the preceding paragraph. Instead of trying once more to measure utility on a cardinal basis, Fleming proposed to construct a social welfare function 173 from the sum of the welfare functions of individuals. Fleming regards "utility" as an ambiguous concept, and "welfare" as a superior one. He says of the former term: It is sometimes used to mean welfare or "desir ability," sometimes "desiredness" (ophlemity), and sometimes a vague intermediate category--.. "that which it would be rational to desire Fleming holds "welfare" to be ethical in nature, for he says, "... [the] measurement of welfare is only possi ble if some restrictive assumptions can be made regarding ^^Marcus Fleming, "A Cardinal Concept of Welfare," The Quarterly Journal of Economics. LXIY (August, 1952), 366-38^ IT^Ibid.. p. 380. 570 175 ethical judgments." Fleming proposed to measure welfare cardinally as others have proposed to measure utility. The details of his measurement procedure need not concern us except as they bear upon the ethical nature of his argument. Fleming posits five ethical postulates that are necessary to establish a meaning for "welfare." He asserts that he does not do this to introduce value judgments into economics, although he is concerned with ends, but to show how a wertfrei welfare economics can serve postulated ethical precepts. This claim is followed by a most intriguing declaration: . . . economic analysis is more serviceable to certain systems of ends than to others (e.g., to those emphasising individual happiness rather than tUpse emphasizing moral righteousness). • * • This raises the issue as to whether Fleming's welfare economics, in company with the others previously considered, can come to grips with justice or any of the higher values. Indeed, the problem is likely to be more serious than that put by Fleming, namely it appears that his welfare appara tus is merely utility reincarnated as welfare. Fleming's concept of "welfare" appears to be strictly utilitarian. 17?Ibld. 176Ibid.. p. 369 571 "Welfare1 * Is synonymous with "happiness." An individual's welfare increases, says Fleming, if he is made happier at 177 a moment of time than he was formerly. Fleming's ethical postulates place a strong emphasis upon an individualistic ethic which biases the results Into close conformity with the ethics of hedonistic utilitarian ism. The first three postulates enunciated by Fleming merely give consistency to his construct. They establish that, within his logical system, though not necessarily in the real world, a complete ordering emerges from social preference. The fourth postulate introduces an individual ist element, in that if one individual prefers Z to I, and the rest of society is indifferent as between X and T, X over 7 becomes the social ordering. The fifth assumption, the most strongly individualistic of the postulates, is meant to apply to a situation arising when two individuals * interests conflict, that is, when Adam prefers X to 7, and David 7 to X, with society remaining indifferent toward X and 7. In this case, Fleming holds that the decision should be made purely on the merits of the claims and the interpersonal situation existing between Adam and David; no consideration should be given as to how the decision 177Ibid.. p. 382 572 will affect the distribution of welfare among the aanbere 1 78 of a society. This is flatly opposed to the ethics of scholasticism. In deciding upon questions of the distribution of welfare. knowledge of the distribution of income in a com munity is vital, for, as was discussed in the preceding chapter, an individual *s welfare depends, in part, upon the income level of others. Despite the ethical postulates utilized in this approach, no hint is given as to how to gauge the fairness of the .lustice of an Income or welfare di str ibution. Pleming*a ethics seem to be compatible with those of the ideal utilitarianism of Moore, discussed earlier in this chapter. Pleming asserts, in his fourth postulate, that in considering the ends of moral action, attention must be paid not to external or physical aspects of certain situations, but to the mental states which are evoked by 179 them. Individual welfare, in any situation, he holds to be the desirability of a situation, that is the desirability being assessed by a mental state at a moment of time. Hence, it is contended that Pleming*s ethics is a form of ideal utilitarianism. 178Ibid.. pp. 369-37*f. 1 ibid.. p. 370. 573 Fleming* 8 welfare function thus involves the summa tion of individual welfares. Fleming strives to show that this summation is possible. We shall not attempt to repeat his highly mathematical, lengthy, tedious, but Ingenious method here. Essentially, once he has defined a state of well-being in conformity with a form of ideal utilitarian ism, he moves from this basic position to establish new indicators of welfare that are increasing functions of the 180 initial momentary well-beings. Fleming proposes to assign numbers to different degrees of welfare as experienced by individuals in differ ent situations such that the total welfare may be defin itely established as the summation of individual well beings. This undertaking is in harmony with the letter and spirit of utilitarianism, and in accordance with, our discussion earlier in this chapter, it can be held to be a type of theory of distributive justice, if utilitarianism is, for the purpose of argument, held to be capable of generating a principle of justice. If the utilitarian principle is not so regarded, then Fleming*a work appears not to be on distributive justice, but is merely a thesis designed to advance the nonjust ethic of the greatest good for the greatest number. l8QIbid.. pp. 375-382 5A The philosopher, Morris R. Cohen, was quite skepti cal of the work of those who believe that they can measure human interests. He charged that those who attempt such measurements seldom examine the implications of the pro cesses they are investigating. He pointed out that it is meaningless to speak of measurement unless (1) a standard unit capable of indefinite repetition can be defined; (2) an operation is possible to permit the determination of two equal magnitudes; and (3) an operation can be pre scribed which will give meaning to the sum of two or more such magnitudes. Cohen asserted that the three conditions he laid down were met neither by the old hedonists, ". • . nor by the recent social scientists who identify measure- 181 ment with certain crude statistical procedures." Fleming attempted to overcome Cohen's three obsta cles. He asserts that a property (e.g., welfare, utility, happiness) must meet six requirements if it is to be cardi- i Qp nal. First, the property must be capable of ordinal relations with other "objects" of its class. Second, relationships must be asymmetrical. Third, relationships among all "objects" must be transitive. Fourth, an equal ity asserted to exist between two or more "objects" exists Morris Raphael Cohen, Reason th<* Taw (Glencoe, Illinois: The Free Press, I960), p. 105. Fleming, on. cit.. pp. 367-368. in whatever combination they are compared. These four requirements establish sufficient conditions for an ordinal system. The two remaining conditions allow for a cardinal measuring system. The fifth requirement is that the range of admissible indicators of the range in the qualities of any of the "objects** is limited, so that one indicator differs from another only with respect to the zero point. The sixth requirement has two parts. The first part speci fies that among those properties which are being measured, there are some, or combinations of some, parts which can be regarded as having an independent existence. The second part of the sixth requirement is Fleming's own invention, "mutual measurement." Mutual measurement means that the quality of a complex can be expressed as the sum of its parts. "Utility," "welfare," and "happiness," are accord ing to Fleming, properties which are thus susceptible of cardinal numeration. It is interesting to note in the light of Cohen's remark quoted above, that Fleming developed his cardinal concept of welfare under principles suggested by Cohen. At the end of the process, Fleming concludes that, under his system, welfare can be expressed as the sum of ^-^Morris R. Cohen and Exnest Nagel, Introduction to Logic th#t Scientific Method (Few York: Harcourt, fer&ce and Company, 1936). 576 individual momentary well-beings, e.g.,W = d + e+f, where d, e, and f are increasing functions of momentary mental states. In other words, once Pleming*s postulates are admitted, and once an elaborate course of mathematical procedure has been followed to work the necessary monotone transformations on the social welfare indexes of individ uals, he has shown social welfare to be the weighted sum of individual welfare functions. Application of the foregoing •to distributive .jus tice. The author believes that Pleming*s work is somewhat useful in discussions of distributive Justice, but that his ethical postulates establish a concept of welfare so much like that of the more commonplace concepts of utility that the practical consequences of his work for our purposes is much less than it could have been were other ethical premises developed. Escaping the utilitarian bias. The chief value of Harsanyi*s work is that it serves as an escape vehicle to propel us away from utilitarian infused theories of welfare economics• Although he separates the utility function from a social welfare function, the discovery of some kind of a community standard— presumably democratically selected— remains a problem. This is the problem to which Kenneth Arrow addressed himself, and from the analysis of which, 577 his paradoxical outcome arises. As noted previously, Harsanyi has suggested that by using his concept of "value” which is purely ethical, rather than Arrow's concept which would be included within Harsanyi *s definition of "subjective preference" or "util ity," the inconsistency in the outcome of Arrow's work can ld^f be overcome. Further, Harsanyi contends that Arrow's problem can be rather easily solved, although the emergent social welfare function must arise from individual welfare functions. He asserts that all that is required for Tion- dictatorship" is that the aggregate function must represent a "fair compromise" among all of the diverse Individual welfare functions.1^ Jerome Rothenberg, however, expresses skepticism of Harsanyi * s compromise, feeling that finding an evaluator of what constitutes a "fair compromise" who can be placed 186 in a position of Olympian detachment is most unlikely. The difficulties posed by Harsanyi's "fAir compro mise" can be largely mitigated if we accept the philosophi cal premise developed earlier, that elicitation of a social welfare function through some type of voting procedure is i QL. Harsanyi, op. cit.« p. 315. l8^Ibid. l88Rothenberg, o p . cit.. p. 268. not strictly a summation of individual social welfare func tions at all, but is, in essence, an expression by an assembly, whatever that assembly is, of their best opinion as to what the overriding "ethic that matters" is. This is the assumption that we shall follow in developing the thesis of the last chapter. CHAPTER XIII DISTRIBUTIVE JUSTICE AND POLITICAL DEMOCRACY I. A REVIEW OP SOME MAIN PROBLEMS AnoT yM.cal Rigor and Distributive Justice Much that has been a matter of concern in this dis sertation may be assumed away by the perhaps convenient conclusion that perfect justice, distributive or otherwise, never will be achieved in human society. The conclusion is termed "convenient” in that some persons may feel that they are thereby relieved from the discomfiture of attempting to answer the very hard questions which ethical inquiry always presents to an even mildly reflective person. The unattainability of perfect justice seems to the author to have a two-fold significance for this disserta tion. First, it indicates that the application of highly refined and sophisticated systems of thought to the problem of distributive justice is likely to lead to blatantly spurious results in an area in which it is most difficult to be precise and in which the results of precise thought cannot be applied in other than a haphazard way. The second significant aspect is that the impossibility, or at 579 least the difficulty, of dealing with matters of justice in a disciplined way may lead trained scholars and rigorous thinkers to desert the field to sentimental and undisci plined moralizers and demagogues, an action which the author believes would be disastrous and irresponsible. There are two sources of error likely to be present in ethical analyses employing rigorous methods of reason ing. One error follows from the use of ethical principles of such a rarefied or unreal nature, that the conclusions drawn therefrom, although perfectly consistent within the system employed, have little ethical significance for a "going society." The second error arises from the use of the logical system itself. Even if the system is supplied with premises of meaningful ethical significance, the solu tion of the system usually bears no relationship with the way in which a modern diffuse liberal democracy operates. Many of the mathematical and logical exercises reviewed in previous chapters are intellectually absorbing and challeng ing, but, in most cases, they present neither guides nor obstacles to the attainment of justice in the distribution of income. Da-fining a Just Distribution A review of that portion of the literature of ethics and economics which is applicable to distributive justice leads to the conclusion that justice in income distribution cannot be satisfactorily defined. If it is held, for the purpose of argument, that a just distribution has been defined at some point in time, it cannot be supposed that the definition is appropriate to any other segment of time. If, for example, the doctrine of just price was an ethic appropriate to medieval society, that alone is not a com pelling reason for supposing it to be an ethic suitable to our own day. What is good in one situation is not necessar ily good in another. The ethical task before man is to endeavor to find what is good in a particular context. The "good** of which we speak here may be part of a greater general "Good," and therefore the described ethical task seems to be reasonable even if there is, in some sense, an absolute unconditional Good• Towards an Eclectic Theory of Distributive Justice The eclectic theory of distributive justice evolved in this final chapter does not express what a just distribu tion of income is for the very simple reason that the author has no idea of what it is. The theory developed here is merely the enunciation of a few principles, gathered together in a loosely organised whole, which the author thinks may be applied in a society that is interested in working on the problem of distributive justice. 582 II. DISTRIBUTIVE JUSTICE BY POPULAR VOTE? To find the "socially approved" distribution, J. de V. Graaff says that the economist must count heads Graaff does not deny economists access to a social welfare function provided by a "Higher Authority," but he holds that the most likely source of information as to what the social welfare function is will be the citizenry in the democratic state. Graaff deprecates most of the criteria that have been evolved within the body of welfare economics, and he proposes a new criterion: "Has the distribution of wealth been improved?" The only practicable way to answer this question is to utilize a value judgment. In the Western liberal society, the community itself answers the question which gives meaning to the Graaffian criterion, namely, 2 "Is the change itself a popular one?" Graaff suggests a simple procedure to assess "popu larity." For example, letting £ represent the proportion of voters who favor a change, and g the proportion who would gain by it, then, if g < 1/2 < p, the change very likely should be made, Graaff argues.3 The symbols show 1Jan de V. Graaff, "On Making Recommendations in a Democracy," Economic Journal. LXXII (June, 1962), 295. 2Ibid.. p. 296. 3Ibid.. p. 297. 583 that the proportion of those who would gain from the change are less than a majority of the voters. However, the pro portion of voters who favor the change is a majority, and, hence, must include some losers. In this situation, some persons who stand to lose from the change nevertheless support it. This is perfectly reasonable, although it has greatly troubled many writers in the field of welfare economics who would term this behavior on the part of the losers inconsistent. Apparently these writers feel that i f man's morals cannot be larger than his appetite. Acceptance of the premises that absolute precision and unanimity of agreement are unnecessary in the context in which economists work does not mean the complete elimi nation of all inconsistencies, for some of them may be of sufficient magnitude to be troublesome. Bather than indi cating the hopelessness of making sense out of the situa tion, another task is opened for economists. Suppose that in Figure 23, economists are called upon to make a recommendation involving some proposed economic change such that a movement would be produced from ^The question of gain may appear to be troublesome. It may be that in a strictly utilitarian sense, a person suffers an apparent loss for a greater but more remote gain. Thus, a childless person might vote to have taxes levied upon himself to provide for the education of the children of others, feeling that the more diffuse gain out weighs the more Immediate loss. 58*f L U* 0 U* U u, PIGOBE 23 GRAAPP* S CASES 1 AND 2 A to B. The utility of the gainers is measured along the horizontal axis, and that of the losers is measured along the vertical axis. Curves UU and U*CT' are utility possibil ity curves. In the move described, the gainers are able to compensate the losers, but the losers are unable to pay the gainer8 to reject the change. Graaff's recommendation is 5 that the change be made whether it is popular or not. If the change is an unpopular one, compensation is a possibil ity for those harmed by the change. Now suppose that a proposed change in the economy would produce a movement from C to D. The gainers cannot compensate the losers, but the losers can pay the gainers to oppose the change. Graaff would rule against any change regardless of popularity, in that the change, if popular, must be so on purely distributional grounds. In this case, a transfer of income from the losers to the gainers is enough to redress the situation. Graaff considers two remaining cases illustrated in Figure 2*f. An economic change causing a movement from N to Q would permit the gainers to compensate the losers, but the losers can pay the gainers to reject the proposed change. Graaff would recommend against the change even if it were popular, in that its popularity would rest solely 5Ibid. 586 u u* u u* 0 FIGURE 2*+ GRAJLFF*S CASES 3 AND b 587 on distributional grounds; therefore, he would re comend a redistribution of incone from the lowers to the gainers* If a proposed change were to produce a movement from H to S, Graaff would recommend the change only if it were popu larly supported. Obviously, the gainers could not compen sate the losers, and the losers could not bribe the gainers 6 to reject the change. Morality or Popularity A utilitarian principle is strong in Graaff's argu ment. In the determination of the principle of distribu tion by head counting, one individual counts for one vote. But in the case of searching for a moral standard of desert, the principle involved may be something other than the casting of dollar votes by consumers in a market context. The procedure suggested by Graaff seems to consist of the finding of the moral standard by an assembly, in which case, considerations other than pleasure may be involved. The "head counting" procedure advocated by Graaff may be nothing more than the resurrection of the old Latin maxim, "Vox pppuli. vox Dei eat." In connection with the Graaffian argument, we should note the strong distinction to be drawn between the framing of rules by majority vote and the deter- mination of outcomes. This distinction will be developed 6Ibid. more fully in the remainder of this chapter. The distribution of income according to popular vote may not be a just distribution of income, and is unlikely to be one in the absence of a guiding ethic accepted by the majority of those casting their votes. Graaff implicitly attaches considerable importance to "selflessness" in making his recommendations, that is, when the proposed change is favored by a majority who have nothing to gain from it. Nonetheless, he gives little attention to ethical conduct or content per se. III. QUESTIONING THE POPULAR VOTE The Desire for Justice The first requisite of a just distribution of income is that the community, or at least a substantial portion of the community, desires it. Justice must be an object of “consumer desire" just as much as is the demand for X-goods and T-goods. If the community has no interest in giving effect to a just distribution of income, there is scant hope of attaining one, even if the ethical principles involved are unmistakably clear. This will be particularly true if invidious comparisons, to use a Veblenesque term, operate to make the attainment of an ethical optimum politically inexpedient • Political Feasibility A just distribution of income may be politically infeasible, Suppose that in Figure 25, Adamfs satisfaction is measured on an arbitraxy scale along the horizontal axis and that of David is measured in the same way along the vertical axis. Curve SS is a situation utility possibility curve or a "grand utility possibility frontier.1 * Assume that point G represents a distribution of satisfactions according to some norm of unambiguous moral significance or an ethic whose properties are under investigation. Point S represents the existing distribution of welfare between Adam and David. The broken V curves represent con tours of the welfare function. At E, the economy is not doing as well as it could to satisfy the demands of its members. Changes should be undertaken to produce a move to a point on SS. According to our ethical prescription, that point should be 6. It may be quite impolitic, however, to move from E to G. Ignorance, prejudice, fear, greed, or various other manifestations of irrationality may require that any changes, if made at all, must bring the community to points lying along FF. This curve is referred to by Samuel son as a graphical expression of the "political feasibility function."^ The only distribution politically ?Paul A. Samuel son, "Social Indifference Curves." The^uartarlv Journal of Economics. LZZ (February, 1956), 590 s F u FIGURE 25 POLITICAL FEASIBILITY FUNCTION AND WELFARE CONTOURS* * Adapted from Samuelson. 591 expedient and which at the sane tine utilizes the full capacity of the econony to confer satisfaction on its nem- bers is that at P, the point at which curves SS and 77 are tangent• The dilemma posed by the political feasibility func tion is that a community may impose upon itself an unjust but efficient distribution as at P or may accept an ethical but inefficient distribution at some other point lying within the area enclosed by SS. If redistributive movements are made along 77 instead of SS, it would appear that society is irrational, in that it is ignorant of the alternatives open to it, or prefers to have less for everybody rather than insisting upon an ideal distribution of the fruits of an optimally functioning economy* It also may be that the perception of ethical Ideals is in some way imperfect. Is Welfare Economics Compatible with Democracy? One possibility that might dismiss the entire con cern for a democratically selected social welfare function, is the thought that the social choice rules compatible with democratic ideals are not consistent with the principles of theoretical welfare economics. Harvey Lelbenstein has raised the uncertainty as to whether the prescriptions of welfare economics and the principles and practices of political democracy are 592 0 compatible. His perhaps disconcerting conclusion is that generally the Pareto choice principle does not appear to 9 counter democratic theory. This suggests that there are instances in which it may be likely that welfare economics suggests undemocratic practices. However, Leibenstein dis tinguishes between Pareto choice as a general rule and Pareto choice as a democratically chosen procedure to be applied in certain restricted cases. The essence of the matter is, according to Leibenstein, that although Pareto choice is likely to be undemocratic in many instances, it is quite possible that the Pareto choice method may be chosen by the majority to apply in specified areas.10 It is conceivable, then, that Pareto choice may be democrati cally ordained to render nondemocratic outcomes within majority-approved areas, and that the whole procedure may be held to be in conformity with the idea of majority rule. The principle of majority rule, say Dahl and Lindblom, is that ". • • decisions should be controlled by the greater number expressing their preferences in the g Harvey Leibenstein, "Notes on Welfare Economics and the Theory of Democracy," The Economic Journal. LXXII (June, 1962), 299-319. 9Ibid.. p. 311. 10Ibld.. p. 312. 593 'last say."*11 Moreover, the control over these decisions is so shared, these two authors continue "... that the preferences of no one citizen are weighted more heavily 12 than the preferences of any other citizen.M Assuming that a social welfare function emerges from some type of societal consensus through the use of a major ity vote (the size of the majority being left unspecified for the time being), we must address ourselves to the ques tion of how much latitude may be permitted the individual transactors (probably a minority) in the day to day life of an economy. The problem stated in terms of a "family society” is not nearly so severe as that in the real world context, for in the family, the degree of cohesiveness, agreement, and concern for other members of the family will likely be much greater and better established than will such qualities in diffuse and impersonal nation- or world wide communities. Nevertheless, for justice in the distri bution of income to prevail, we contend that there must be a concern with the welfare of others in a society, and we urge that the greater the degree of concern, the better are the chances that income will be justly distributed. 11fiobert A. Dahl and Charles E. Lindblom, Politics, Economics, and Welfare (New Yorks Harper A Brothers, 1$^3), p. *fl. 12Ibid. 59^ Majority decisions and ■innritv rights. Curve II in Figure 26 is an income possibility curve. The incomes of Adam and David are measured on the horizontal and verti cal axes, respectively. Leibenstein has defined six pos sible types of agreement on points lying on an Income possibility curve such as II: (1) universal consent points, (2) maximal consent points, (3) majority consent points, (*+) minority consent points, (5) universal preference points, and (6) majority preference points.^ If everyone agrees that a state represented by a point is good, it is said to be a universal consent point. If the greatest number of those voting agree that a point is superior to or is as good as an existing point, that point is said to be a maximal consent point. A majority consent point exists when a simple majority favor it. A minority consent point is agreed to by a minority of peo ple. Preference points refer to points that are preferred by everyone or a majority within a given consent area. Suppose three persons Adam, David, and Thomas form a community, then all points within the shaded area of Figure 27, page 596, are universal consent points. If Paul is added to the community, the shaded area now becomes a maximal consent point area, and, in this case, it also is ^Leibenstein, op. cit.. p. 306. 595 I I I o FIGURE 26 INCOME POSSIBILITY CURVE 596 FIGURE 27 CONSENT AREAS AND PREFERENCE POINTS 597 lL, a Majority consent area. Within the shaded area, there are very likely to be points More highly preferred by the several members of the community to other points. With the aid of figure 27, it is possible to see how Leibenstein argues that Pareto choice may be undemocratic. Point k is a universal consent point for the original three- person community; everyone agrees to the ordering of k over 1. Point m, however, is preferred by two-thirds of the population to k; point m is a majority consent point. Now, if the rule of Pareto choice is followed, point k will be chosen over 1, which is as it should be, but m which is preferred by the majority will be defeated by k. Pareto choice requires a universal consent point. If Pareto choice is followed, Adam can defeat the majority choice of David and Thomas. Adam has a veto power leading Leibenstein to conclude that the new welfare economics implies minority rule.1^ Leibenstein argues that Pareto choice need not be necessarily in conflict with majority rule, if the majority has ruled to apply Pareto choice within certain specified areas. Furthermore, we may add that a minority does have rights which it is incumbent upon the majority to protect. llfIbid. l5Ibid., p. 311 598 The problem of achieving distributive justice In a "family society" leads to a solution not difficult to imagine, inasmuch as in no other organization will the mem bers be so immediately concerned with the welfare of the other members. The hard problem of justice is presented in a larger society in which individuals obviously do not love each other, most of whom have never met, whose self interestedness is not tempered by familial considerations, and who operate under an ethic perhaps poorly understood and imperfectly evolved. In any set of transactions occurring within a society, it seems more likely than not that the individual transactors will be a minority. But no matter how large the society, the acts of anyone in it will have ramifica tions throughout a community. The actions of any one individual increase or diminish the community to some extent. The community makes the rules, but a liberal society must allow individual participants the opportunity to control a large measure of their own destiny. The major ity may determine and perhaps enforce a general ethic, but the ethos of our society requires that a minority must be safeguarded from the hopefully temporary mistakes of the majority. Por the protection of the minority, says Leibenstein, it is Important that an individual's consent area be inde pendent of the individual's knowledge of whether his 599 consent area Intersects with the majority preference point^ In other words, David may know that point m lies within his consent area, but for the protection of Adam (the minor ity ), he should not know that m lies within the consent area of the other one-third of the population, i.e., Thomas. It is important to note, however, that in a "family society," so in the larger society, Ignorance is not essen tial for the just operation of the ideal of majority rule* If the majority acts in the absence of any desire to gang up on the minority, a just system can operate without the necessity of Ignorance. A fair solution is possible if the majority determines only the rules of the game and not the outcome. As noted by Leibenstein, a fair set of rules requires that the rule maker should not consider how he 17 will fare under them. The author of this dissertation feels that a more correct rendering of this same basic idea would be to say that the rule maker(s) must not frame the rules to give himself (themselves) an unfair advantage in every outcome. In the purest form, the principle is essentially one of selflessness, at least to some degree. In a community of saints, selflessness would apply without limit. A l6Ibid.. p. 312 17Ibid. family may be marked by a high degree of selfless behavior by its more mature members. In the larger society, concern for others abides in various degrees of attenuation. But if a society is interested in the Just distribution of income and in the preservation of free choice, the princi ple of concern and fair treatment must at least be a goal if not a realization. IV. ELEMENTS OP AN ECLECTIC THEORY OP DISTRIBUTIVE JUSTICE A "Point Q-f Unambiguous Ethical Signi-fM can^ft" Our problem remains to see if we can find a point on II in Pigure 26 which denotes a just division of income. Leibenstein* s method offers considerable help in narrowing down our search to a segment of II. In Pigure 28, the Incomes of Adam and David are measured on the horizontal and vertical axes, respectively. Curves AC and DC represent pure Pareto indifference curves. In the Pareto type of comparison, the individual considers only the size of his own income. Adam and David follow curves AC and DC, respectively, only if they are concerned with the magnitudes of their own incomes. Por example, on curve AC, Adam is Indifferent between a certain level of his own Income and any amount of David's income as measured along the vertical axis. Prom this It follows that all 601 A' D* I FIGURE 28 DEPICTION OF A MUTUAL CONSENT AREA* Adapted from Leibenstein 602 points on or above ACD are superior to point C in so far as the ftft— wni-tar of Adam and David is concerned, if the commun ity operates on the principles of pure Pareto choice. Consider, however, curve CA"; it depicts a conparison in which Adam is concerned solely with his proportionate share of income. It represents a locus of points at which Adam*s proportionate share of income remains the same. A similar curve exists for David, but it has been omitted from the drawing for the sake of clarity. Curves CA* and CD* are compromise indifference curves. On a compromise indifference curve an individual is concerned with both the absolute size of his income and his share of aggregate income, but he is indifferent to all points on the curve. Once compromise indifference curves have been intro duced, all points on or above ACD are not superior to point C. Only those points bounded by A*CD* are superior to C if Adam and David compare their own incomes with each other as well as consider intrapersonally the absolute magnitudes of their own incomes. Leibenstein regards the area bounded by A*CD* as a "consent area." Adam and David agree that any point within A'CD* is as good as or is superior to C. Now suppose that II is the Income possibility curve. Segment ii lies within A*CD*, and is therefore the relevant segment of II. It is the segment of II on which the community of Adam and David 603 is in agreement that a distribution of Income ought to take place. The precise point on II (ii) is not indicated, but the search has been narrowed down to some point restricted to segment ii, Adam and David would mutually agree to move from C to some point on li. Any point on 11 is as good as or is superior to point C. But any point on 11 is, as Leibensteln point8 out, quite likely to be of more benefit to one than 10 the other party. Therefore, although Adam and David can achieve unanimity in the decision that they ought to move from C to some point on 11, they may have great difficulty in deciding which point on ii shall be the termination of their move. The absence of agreement may frustrate any move, and we may have a situation much like that discussed in connection with Samuel son’s "political feasibility func tion." An issue of .justice. The issue of justice in income distribution is squarely raised in determining which point of li is to be the ultimate destination of a movement from C. To determine which point on ii is to be chosen requires some moral criterion by which a "judge” could render a decision, Leibenstein says that there must be a third party to l8Ibid.« p. 302 60lf 19 render the decision. The identity of the third party is open to speculation. Leibenstein's suggestion is strongly reminiscent of Little's interjection of a fourth party into 20 a supposedly three-party situation. Leibenstein suggests that the third party could be the government or the market mechanism. The individuals in a community might agree to abide by the decision of this "third party” as to what point on ii is to be chosen. If the principle upon which the final decision is to be made is one of Justice, there must be some concept of what Justice is. It is quite possible, of course, that a mutual con sent area will not exist, that is, the range of II cannot be narrowed. However, Rothenberg, Leibenstein, and Graaff agree that in a modern society of the Western type, a mutual consent area is highly likely to be present. Leibenstein*s suggestion as to how to select a point on ii does not help in indicating a Just solution to the distributive problem presented here. Indeed, one of the principal contentions of this dissertation has been that \ there is no necessary connection between Justice and market rendered decisions. Similarly, there is no reason to suppose that the government knows or cares anything about a 19Ibid., p. 303. See Chapter HI, p. 556, under the section entitled "Ordering by an external source." 605 just distribution. We must now turn our attention to find ing the ethic which will serve the "judge" in fixing the point on ii at which the distribution of Income between Adam and David is to take place. Attempting to Evolve a Just Distribution Frankly facing the question of justice forces one to the conclusion often enunciated by religious moralists, and as often dismissed as sentimental pious twaddle by nearly everyone else, that justice can corns about only to the extent to which individuals become concerned with the wel fare of each other. The commandment to love one*s neighbor as one *s self is the Scriptural expression of this conelu- 21 sion. Being told to do this is, however, only the posit ing of an ultimate ideal. The task that is examined in the last pages of this chapter is how society moves to the unattainable goal of justice in income distribution. The society in which justice is sought seems itself to be an important condition in the implementation of jus tice. The societal unit in which the closest approximation of justice in income distribution is reached is probably the family, for in the family the individual members are the most likely to be concerned with the development and fulfillment of the individual lives of its members than in 21Mark 12*31 6o6 any other form of human organisation. Therefore, it would appear that the more society resembles a family, in the sense that the more the individual members of society feel themselves to be involved with one another, even with those whom they have never met and will never meet, the more likely will it be that the cause of justice will be served, 22 albeit imperfectly. Suppose that in the two-person family of Adam and David, the utility function of each is written °a = V xa’ *a’ sa) 8114 Ud “ trd(xd> *d» °d>» respectively, where and y^ are the quantities of X and T goods consumed by any individual, and s^ is the productive service offered by any individual. The social welfare function for the family community of Adam and David may be written W = W(Ua, U^). The social welfare function is the ethic that counts in determining the apportionment of X and T goods between Adam and David, this apportionment giving rise to the utility functions U and U,• a a . As was shown in the last chapter, the goal of the 22 We find occasional use of this family community concept made in the literature of economics. Paul A. Samuelson has attempted to deal with the democratic fulfill ment of welfare maximisation by considering society as a family. See Paul A. Samuel son, "Social Indifference Curves} 1 Quarterly Journal Economics. LXX (February, 1956) ? 1-22. 607 community (here, a family) is to maximize W subject to the ability of the economy to satisfy the desires of the indi viduals comprising it. Thus, when the partial derivatives of the function W * W[Ua(xa, ya, sa), Ud(xd, yd, sd)] ♦ Xf[(xa * ya), (xd ♦ yd), (sa + sd)] 2^ are set equal to zero, W will be at a maximum. We shall assume that W, the social welfare function, comprehends the great ethical goal of Justice in distribu- o i i . tion. In other words, we shall assume that it is of paramount concern to Adam and David that I and y be appor tioned between them according to the principles of Justice, whatever they may be. The income of any individual in our society may be written such that xi * ^Pi * ^i^ + where (pf * qf) is the amount spent by an individual in 2^The system of equations involved in the maximiza tion process need not concern us, for our interest is in what W consists and how Adam and David (the community) go about maximizing W in their relationships with each other. We are neglecting for the moment how the W-func- tion was obtained or the problem of its source. 608 buying q quantity of G good at price p. Let us also say that the individual buys Z and Y in fixed proportions at constant prices, so that 1^ is generalized purchasing power. The total income of the economy may be represented as I « Ig ♦ I4. The ethical goal of the community is that Ia and la represent just shares of I. We may now suppose that Adam and David are faced by the problem of how to divide I justly. In attempting to solve this problem, about all that Adam and David can do is to do what is done in every strong and secure family unit, that is, each must be as vitally, personally, and totally concerned with the other person's welfare as he is with his own. In this case, to paraphrase Paul A. Samuel son, they will strive to make the marginal social significance of each individual's dollar expenditure 2 5 equal. This suggested equilibrium without the W-function (which provides for the ethical content of the distribu tion) does not necessarily insure the just distribution of income, although it may conform to the ethics of hedonistic utilitarianism. Without the W-function we must write: »ua/saa - a<V*id, ^Paul A. Samuel son, Foundations of Economic Analy sis (Vol. LXXX of the Harvard Economic Studies. Cambridge: Harvard University Press, 1958), p. 2*f 6. 609 where au^/yl^ is the marginal utility of income to the ith individual. An inequality in the ratios would indicate that a transfer of income from one individual to another would increase aggregate satisfaction, a change which would bear no necessary relationship to justice in the dividing of I. For justice in distribution to obtain, we must add the prescriptive non to be found in the social welfare function, so that we may interpret the meaning of an equal ity in the marginal social significance of income between individuals in some ethical way* We shall hold that such an equality in the ratios means that each individual must receive the largest income as is within the power of an econony to grant to the end that the individual will be able to fulfill himself, subject to the requirement that every other member of society will similarly have the opportunity for full personal development. Suppose that our W-function is the ethic that con tains the prescription for distributive justice* We may write s aw aua H a 3U, In this equality, we are forced to tedce into consideration 6io the ethical code of the community, not merely the non just ethic of hedonistic utilitarianism. The ratio expresses the change in the welfare of the community produced by a change in the satisfaction level of one of its members. The ratio expresses the change in the level of satisfaction of a member of the community produced by a change in his income. If the following inequality should obtain: 9W 9M gpa > gPd *x« 9Id the welfare of the community (the cause of distributive justice) would be advanced by a transfer of income from David to Adam. In a family made up of rational individuals, we may suppose that each member of the family wishes to do his best for himself and for the family, and that every other member of the family wishes the same for himself, for any other member, and for all of the members of the group. * 26vfe must, for simplicity, as well as for justice, disregard the ego-centered preferences of the immature mem bers of the family, i.e., their preferences cannot be allowed to count. 2?2he author is aware of the considerable degree of immaturity9 irrationality, and vanity harbored in the best 611 Inasmuch, as I represents the total Income of the community, we may assume that it represents the total dis position of income (into consumption and saving) as well, that is, we may establish the identity: I = E , where E represents the complete disposition of the commun ity income by the members of the community. Therefore, for our model two-man community we may write: B * Ea * Ed * We may now write our equilibrium condition as: d W aw _ 3gd 3Ea J>Ed The above recasting of the equation in terms of income disposition, rather than Income receipt adds nothing in Itself to our discussion, but the point of recasting the income of the economy in terms of its disposition is to of us, but this merely illustrates the proposition asserted at the beginning of this chapter that perfect justice is unattainable. The family is used as a standard, because the author feels that whatever finer qualities individuals may possess, they will be more fully manifested within the family than in any other form of social organisation. 612 show that for justice to prevail in the distribution of the income of an economy which responds to the free exercise of choice, the citizen (spending unit) must be concerned about the ethical effects of the disposition of his income, that is, the problem of valuation, so badly neglected in almost every treatment of distributive justice must be given full weight. We shall therefore rewrite our equation once more, interchanging the income disposition of each member of the community with the other to emphasize the inescapable inter- dependency existing between the participants in an economy: 9 W 9 W 3Pa _ gpd 7Ed ?Ea We are saying that a change in Adam's disposition of his own income must affect David's level of satisfaction such that the welfare function is maximized. This process will result in the establishment of a point on II (specifically within ii) in Figure 2d, at which I will be distributed between Adam and David such that Ia and l£ represent ethically desirable income shares. We may suppose that something like this happens in a well-ordered, secure, and achieving family. The main purpose of the unit is to maximize the total welfare of the family group and within the goal of building a strong and 613 secure family group, the purpose will be to advance the personal development of each member. Should these conditions not obtain, it seems quite likely that something less than a strong, secure, and worth-while family unit will result. If the W-function is not maximized, the family will be something less than It could be, and if each Individual's potentialities are not being developed to the fullest, the individual will be less than he could be, and this is most certainly unjust. By the development of the individual is meant that within the limits of the resources of the family, each individual must be permitted to fulfill himself, to develop and utilize his talents— to produce himself— as Peter 28 Drucker has said, to the fullest extent possible, subject to the right of every other family member to do the same. This seems to the author to be an approximation of what is meant by the expression "distributive justice." Should the family consist of more than two members, the principles involved would be exactly the same; the only change in our description would be that the eymbollc repre sentation of the maximizing process would become more cum bersome and tedious. Prom our small family unit, we can proceed to that 2^See Chapter III. 6l*f "larger family,** the community or society. In a similar way, the members of a society must desire fulfillment for themselves and for each other. If they do not fulfill them selves as individuals, they deny to society that which they as individual members could contribute. If they do not allow others to develop themselves, they cheat both the deprived individual and the community, in other words, they commit a double-pronged act of injustice. Determination of a Social Welfare Function The process described in the preceding section is just that— a process. It assumes the definition of a social welfare function, although the process itself implicitly contains the ethic expressed in the Scriptural injunction to love one's neighbor as oneself or in the "Golden Rule." But how is one to love oneself? The question itself is probably its own best answer, for all that we can properly postulate here is a methodological norm and stress that the search for justice is the important and only approach to distributive justice reasonable for this dissertation to suggest. Man cannot expect to find the perfect answer but only partial answers to ever-changing distributive problems. The determination of a social welfare function, although perhaps no easier to articulate in the case of a family society than in the total community, seems somewhat easier to consider in the former unit. The immediate 615 family unit Is bound by readily perceived ties of devotion, love, duty, and heritage— ties which become progressively weaker as the family broadens until it includes persons having no immediate knowledge of each other*s existence* The family probably demonstrates the closest approx imation to a pattern of ideal relationships to be found In society. In it, conflicts of Interest are likely to be 29 settled In what John Bawls has termed "a law of love*" On this same point, the philosopher, Hans Kelsen, has noted, "Where there is no conflict of Interests, there Is no need for justice."3^ And, we have noted before that Aristotle concluded that "Between friends there Is no need for justice."3^ Probably what Bawls, Kelsen, and Aristotle mean is that in a community In which Individuals are vitally con cerned with the well-being of each other, the problem of justice is never consciously perceived. In a more diffuse community, the problem of justice is more evident because individuals have less concern for and less understanding of 2?John Bawl8, "Justice as fairness," Justice and Social Policy, ed. Frederick A. Olafson (Englewood cliffs, Hew Jersey: Prentice-Hall, Inc., 1961), pp. 90-91. 3°Hana Kelsen, "What Is Justice," What la Justice (Berkeley and Los Angeles: University of California Press, 1957), P. »f. 31 Aristotle, The Hlcomachean Ethics, trans. J. A. K. Thomson (Baltimore: Penguin Boots, 1961), p. 228. 616 each other. In a family, there is usually a strong consensus (or one Is highly probable) on an ideal and a strong com mitment to its fulfillment. Thus, the choice of a familial "social welfare function" and its realization are real prob lems, but ones which may seldom penetrate the threshold of consciousness. In a diffuse society composed of persons who have only a scant, if any, interest in each other, the implemen tation of justice is a severe problem. The determination of an ideal distribution involves finding the ethic that matters— the social welfare function. Repeated attacks on the problem seem to have produced little more than a miasma of confusion. Part of the prob lem is philosophical; part of it is statistical• It is possible to confound the issue at the outset by becoming bogged down in the question of relativism ver sus absolutism in ethics. Do men vote on whatever ethic they find most agreeable, or do they meet to express their opinion as to what is some grand, overruling, pre-existing, and independent principle of justice? We may, for example, picture the "Social Welfare Function" as some type of composite of numerous social welfare functions of various individuals. Suppose this is expressed as W * w^ + \§2 + w3 * • • • ♦ wn» where W, the 617 Social Welfare Punetion, Is determined by the social wel- 32 fare functions of the individuals comprising a society. This expression may be read as indicating that everyone has a favorite standard of good and that the determination of the Social Welfare Function for a society is an ethical popularity contest. But the expression may also be under stood as meaning that those who promulgate the Social Wel fare Function meet to give their opinion of what it is, that is, it may be assumed that the Function has an objec tive existence of its own, the task of men being to find out what it is. Whether men themselves determine what the good or the just is, or whether they merely express their opinions of it, trusting to the presence of numbers or to the dis position of an assembly to minimize human error, as far as anyone can tell, the process of ascertaining what the good or the just is will appear to be the same. Someone or some group must promulgate the ethical standard. The- main prob lem for us seems to be to whom shall credence be given? Once this matter has been settled, the problem of ascer tainment involves the problem of counting. 32?hi8 hypothetical expression is not meant to imply that the "Social Welfare Function" can necessarily be found by the simple addition of Individual social welfare func tions. 618 If one individual Is clothed with the authority to speak definitively on moral issues, the problem is simpler than if, at the other extreme, ve turn to society or to a large segment of society as the ultimate interpreter and promulgator of the moral code. The context in which distributive problems are solved has been assumed to be for this dissertation a liberal democratic society of the Western type. It is also assumed, therefore, that the selection of a social welfare function emerges from some kind of societal consensus, generally nation-wide in scope, although there is no reason why ethics should or does stop at a nation's borders, save for the perhaps insubstantial problem of effectuating ethi cal decisions in a foreign jurisdiction. Even this is not entirely out of the question. For example, the moral teachings and discipline of the largest and oldest of the Western Christian confessions are supra-national in charac ter, and many of the non-Roman Catholic denominations join together in a common communion and discipline which trans cends political boundaries. Nothing that has been said about the role of a majority of persons in the world or in a nation to deter mine a social welfare function necessarily precludes the delegation by a larger group to a smaller group or even to an individual of the power to conduct transactions within 619 the general framework of a set of moral principles. Thus, a society may leave the outcome of a transaction to the bargainers, if it is felt that they are well able to take care of their own interests, as long as the overruling interest or morality of the community is not thereby preju diced • The problem of the social choice of a social welfare function has led, according to many authorities, to prob lems of intransitiveness or to so-called undemocratic solu tions. The problem does not seem to be one of voting, inconsistency, or undemocratic imposition as much as one of an insistence upon spurious accuracy and pedantic hair splitting. Although our society is vast, diverse, and diffuse, there are compelling reasons for believing that there is widespread agreement on "generally prevailing values .H The ethos of a democratic society appropriately includes the idea that the people themselves are the source of ethical pronouncement or interpretation. For the con text in which this dissertation is written, the inconsist encies, so troublesome to many welfare economists, need scarcely concern us. For support, we may cite the refresh ing declaration of J. de V. Graaff that the economist need not be anymore consistent than the society in which he 620 operates The position argued for he ire is that which is termed by Harsanyi a "fair compromise of ethical opinion, or which is called by Graaff the "generally prevailing values school of t h o u g h t . 5 Graaff argues in support of this contention that if a society is at all cohesive, there must be, to some degree, a common ethic A Recapitulation on the Nature of fhia Discussion It is worth-while before concluding this disserta tion to pause momentarily to examine the nature of this discussion. We are now at an unusual place within a dis cussion of welfare economics (if, indeed, it is reasonable to contend that we are still discussing welfare economics), for the "welfare economics" of which we are now speaking is quite different from that described at the outset of Chapter IX. Obviously, we are not talking about positive economics any longer, so that criticisms from exponents of the pure discipline would not be strictly in point. To ^Graaff, op. cit.. p. 295. John c. Harsanyi, "Cardinal Welfare, Individualis tic Ethics, and Interpersonal Comparisons of UtilityThe Journal of Political Economy. XL III (August, 1955), 3151 3^Graaff, op. cit.. p. 29*f. 36Ibid. 621 those who might feel that we have substituted an unesthetic and inelegant mixture of ethics and politics for the rigor ous but recondite (and rather ineffectual, we are tempted to say) discipline of the new welfare economics, we cite in reply the words of Graaff addressed to much the same charge: "To the taunt that [the economist] would become too much of a political economist I would reply: given the 37 nature of the problem that is inevitable *" We shall close the issue by adding to this Graaff *s somewhat wry suggestion that if a procedure for ascertaining and imple menting community values does not resemble welfare econom- 38 ics, that is probably to the good. Justice in the Larger Society We shall now reassert two ethical propositions developed earlier in the dissertation and incorporate them into our eclectic theory as we attempt to apply it to the problem of distributive justice in the going society. Assumption I. Pirst of all, we shall assume that a going community has found an ethics upon which to build an ethics upon which to build an enduring society. The con tinued existence of the going society suggests this is 37Ibld.. p. 298 38Ibld. 622 true. In Western society, It is not difficult to find a common body of ethical doctrine— a "fair compromise of ethical opinion." It is the body of Greco-Judeo-Christian moral thought which pervasively permeates the standards of all men who can reasonably be said to have a morality. A sub-assumption of this first main assumption, then, is that the vast majority of the persons of our society, whatever their creed, have a morality. If we are dealing with a group of persons the majority of which lack a morality, it becomes an unmitigated absurdity to be concerned with dis tributive justice. This assumption means that we have agreement upon the broad basic principles as to how men shall live with each other. The immediate ethical task is to find what is just in each particular situation, for every situation is unique, and what is just in one situation may not be so in another. The general agreement on morality can be used as a guideline in working on a particular problem of distribu tive justice. Assumption II. The second basic assumption is one which permits us to work backwards to some idea, at least, of what distributive justice is. We assume, as we did in the immediately preceding chapter, that the ultimate dis tributive injiiatioa is to be denied access to the produc tive process. Therefore, denials of access by degrees are lesser acts of distributive injustice, the severity of the particular injustice depending upon the amount of exclu sion* The author feels that those endowments bestowed upon individuals by Nature must be taken as a datum. There is no way in which the natural endowments of one person may be transferred to another. Faced by the reality of this pros pect, the most reasonable course of action is to permit each individual to develop his natural capabilities to the fullest extent possible, so that both he and society may derive all that can be realized from the development of otherwise latent capabilities. This means that each individual must be fitted for and permitted the most com plete access to the productive process. It is in this sense that the author means that the marginal social sig nificance of each dollar of income to each individual will be equal. Working on the problem of distributive justice. For the extension of these ethical assumptions Into a somewhat more practical situation, the author has found two com patible doctrines in John Rawls* theory of justice and in the ethics of situationism. The Rawlsian concept of justice may be adapted for relevant inclusion in our discussion, for in it justice is construed as fairness— fairness in formulating the rules 62V of the game.^ This concept can be incorporated into the idea of finding a community principle of distributive jus tice without doing violence to the basic ethos of a liberal society* The rules for the conduct of a transaction must be made (interpreted?) by the rule maker without reference to biasing the results in favor of the rule-making major ity. Additionally, the rule maker must not abrogate the rules when the outcome is unfavorable as far as the rule maker is concerned, provided that the outcome is within the rules. The rules of which we are speaking are those of the decision process itself, not of the final outcome. These rules must be framed to accord with the greatest liberty for each person, in so far as the liberty of any other person is not thereby infringed. The rules must be such that all members of society can acknowledge them mutually before each other as fair. Any inequality remain ing in the social order operating under the rules is thereby condemned as arbitrary unless it can be shown to be for the benefit of all.1 *0 Under the Rawlsian theoxy of justice, it is quite possible to accord with Leibenstein*s suggestion that a 39see Chapter III• VO For example, to take a simple case, an inequality stemming from abnormal profits might be justified on the grounds that it is necessary (temporarily) to attract new firms. 625 democracy can decide by majority rule that within certain areas of the economic sphere, it will operate under rules of choice consistent with universal consent points, that is it will allow certain outcomes to be determined by the operation of Pareto choice. This would be consistent with Bawls' outline of justice in which the rules shaping the conduct of a transaction could be determined by majority rule, but the outcome itself would not be necessarily forced into conformity with majority rule where to do so would be unjust. Perhaps our eclectic theory of distributive justice comes back essentially to the process outlined in connec tion with the "family society" hypothesized earlier in this chapter. Concern is, after all, the paramount requisite, but if the concern in the larger society cannot be for every individual, it can be with justice for every individ ual. This means that individuals must be concerned with, among other things, the valuations they attach to the ser vices and products of others. As Bawls has indicated, justice cannot be regarded as the rendering of an executive decision.1 *^ Acceptance of the premise that individuals have equally valid claims to satisfaction involves the less lflBawls, o p . cit.. p. 105. 626 obvious and erroneous assumption that the satisfaction of desire has value in itself. As noted in the preceding chapter, the satisfaction of desire has value only in rela tion to the community of persons in which all participants have an equal liberty to the fulfillment of themselves as persons, and in this context all practices, claims, and desires are prima facie unjust unless the individuals in society can acknowledge before each other that they are fair. The "Just Society” The search for a norm of unambiguous moral signifi cance is a difficult and uncertain task. In the setting of our discussion, it involves regarding the liberal society as a problem-solving community. It is rather ridiculous to speak of a "just society"; the best that can be said of a community is that it is a justice-seeking society. The justice-seeking society is made up of individ uals who themselves are interested in promoting their own level of development and who are interested in promoting the same type of moral inquiry in others. It is patently obvious, that mankind cannot live by a universal code of justice, much less a universal ethic that matters, even supposing that he knows what it is, but this should not be the occasion for a loss of nerve or be regarded as a moral catastrophe. That our efforts to pur sue justice oust he "befouled by Inevitable error and folly** should not prevent us from trying to solve the problem of distributive justice• The problem-solving task confronting man is to search for what is just in each situation. The assumption of a universal standard of absolute Good, no matter how ineffable, does not vitiate the statement that what is good in one situation may not necessarily be good in another situation. For example, the Children of Israel were com manded to keep holy the seventh day of the week which meant, among other things, that they were not to perform any kind of work on the Sabbath. Yet, the New Testament records several instances in which Christ practiced healing in apparent violation of a rigid moral principle. Confronted on each of these occasions by the accusations of the Pharisees that he was transgressing the Law, Christ noted that the situation must be considered in deciding whether H-2 k- 3 an act is good or not. ’ The question which Christ put to the Pharisees illustrates the situational ethic: "Is it lf2Mark 2; Luke l*t:l-6; John 9. L.O further example from the Old Testament of a situational ethic was the approval given to David and his men to eat the most holy bread of the sacrament because they were hungry, although in terms of an absolute ethic that action would seem to have been clear sacrilege. See Samuel 21:1-6. For Christ's approval of David's action, see Mark 2:23“28. 628 lawful on the sabbath to do good or to do harm, to save life or to kill?" Accordingly, Joseph Fletcher says that justice under the situational ethic may be defined as "love using its head." The problem of justice, then, in mundane economic relationships is not purely metaphysical, but partakes largely of the nature of an intellectual inquiry. Individ uals must use their intellects in solving most of the day to day problems of justice. But, the use of the intellect must be tempered with humility. Social science no matter how refined cannot be a cure for entrenched injustice, ignorance, prejudice, and vanity. "It must not be thought," says Kenneth E. Boulding in a reflective essay, "that all that is needed for world salvation is a stiff dose of social science no matter how well documented empirically and no matter how well inte- grated analytically." Boulding warns us against the nightmare of the manipulative society in which social science might play a part: ^Mark 3:*+. 1+5 'Joseph Fletcher, "Situational Ethics: A Note for Business Management," University of Washington Business Review. XX (October, I960), 21*f. ^^Kenneth E. Boulding, "Religious Foundations of Economic Progress," Business and Religion, ed. Edward C. Bursk (New Tork: Harper * Brothers, 1959), p. 132. 629 The rise of social science presents man with, prob lems of an ethical and spiritual nature of which he is still for the most port not aware* • • • The worst that a physicist can do for anybody • • . is to cause pain and death* The social scientist when he knows a little more, may be able to destroy the soul, that inner core of freedom and integrity which constitutes at once the divinity and humanity of nan The shadow of Platonic ethics is glimpsed in the above passage; Boulding fears that social science nay pro duce a ‘ 'world of unseen dictatorship" in which the govern ment creates rather than tries to implement the ethic that matters• Boulding suggests that religion must be used as a guide in avoiding a human catastrophe. Acceptance of a religious philosophy does not mean, of course, that the path to Justice is cleared of all pitfalls* A history of mankind's experience with religion is a history of ethical aspiration and moral realization that do not match* The same is true of the efforts of some people to live by ethics of a philosophy of humanism* But whether one accepts a theistic or a humanistic viewpoint, one must con clude that it is not a disabling tragedy for man that he cannot live in accord with "a norm of unambiguous moral significance*" Man will only show a failure of nerve when he ceases to look for the ethic that matters* **7Ibid V. SUMMARY 630 A prime reason for the Inability of welfare economics to comprehend the Issue of distributive justice is its grounding in the ethics of hedonistic utilitarianism. Retaining much of the methodology of the new welfare eco nomics and using a modified philosophical basis, the author has attempted to describe an eclectic theory of distribu tive justice. Although the just society is an impossible ideal, a society may be a justice-seeking society in which distribu tive justice is regarded as a problem to be solved by the joint action of free men. If men have a morality, justice may be approached by fairness in framing the rules by which men live and by fair conduct in confrontations between individuals. The ultimate distributive injustice is to be denied access to the productive process. Hence, partial denials are lesser acts of injustice. Taking personal endowments as a datum, distributive justice requires that each individ ual be willing to accord to every other individual the maximum opportunity for the fullest participation in the productive process consonant with the personal endowments of each person. Income must be continuously redistributed such that the marginal social significance of every dollar to each individual makes possible preparation for and represents participation in the productive process in accord with the potentialities and the developed natural ability of each person. CHAPTER XIV SUMMARY AND CONCLUSIONS I. SUMMARY The Problem of Distributive Justice An ethical problem In Income distribution exists when a decision must be made as to how income ought to be apportioned between two or more distributees. Of a number of possible ethical criteria which might be applied to a consideration of the distributive problem, this disserta tion has considered that of justice. The Marginal Productivity Ethicists The marginal productivity ethicists believed that the theory of marginal productivity furnished the solution to the problem of distributive justice. It is significant that the marginal productivity theory was being popular ized as a theorem in positive economics at the same time that certain authorities were attempting to use it for normative purposes. The marginal productivity theory is an attempt to explain the demand of an employer for factors of production. Properly qualified, it can be used as one explanation of 632 633 the income shares received by the owners of factors of pro duction • In the latter sense, the theory holds that under conditions of pure and perfect competition, a factor owner will receive the value of the marginal product of his fac tor units as his share of the income of an enterprise. Under conditions of impure and imperfect competition, the factor owner can receive the marginal revenue product of his factoral units. The marginal productivity ethicists held that the marginal product attributable to a factor of production was the creation of the particular factor and, hence, belonged to the owner of the factor. Thus, if the factor owner is paid the value of the marginal product of his factor units, he receives what is rightfully or justly his. Since the marginal productivity theory shows that income is apportioned between factor owners on the basis of the mar ginal productivity of their factor units, the marginal pro ductivity ethicists concluded that it could be interpreted to be a theory of distributive justice. The most notable marginal productivity ethicists were John Bates Clark, Thomas Nixon Carver, and William Smart. Many other economists accepted the reasoning of these three men with varying degrees of enthusiasm. John Bates Clark was a pioneer in the introduction of the marginal productivity theory in the Tftiited States. 63h His early interest in philosophy and social ethics was undoubtedly influential in causing him to reflect upon the ethical implications supposedly inherent in the marginal productivity theory. It appears that Clark was highly attracted to the idea of developing the theory along the lines of ethical inquiry. Subsequent writers have almost universally accorded to Clark the distinction of being the premier marginal productivity ethicist. In the author's opinion, these commentators are, to a considerable degree, wrong. Although Clark considered the possibility of ethical implications in the marginal productivity principle, he ultimately divorced himself from promulgating the theory as a definitive canon of distribu tive justice. He realized that a value conclusion must be reached from value premises, and he indicated that he had not incorporated ethical premises into his reasoning in any thoroughgoing way. Further, he indicated that even if the marginal productivity theory were considered as representa tive of one particular thesis of justice, there were other ethical criteria which must be appraised before a final statement could be attempted as to what constitutes justice in the distribution of income. Thomas Nixon Carver, a competent economist in his own right, was, in the author's opinion, the most outspoken marginal productivity ethicist. At his hands, the marginal 635 productivity theory was promulgated as the definitive statement of distributive justice. The receipt of income shares by a factor owner in accord with the principles of the marginal productivity theory was held by Carver to be distributive justice. By a rather ingenious bit of reasoning, Carver avoided a complete capitulation to a charge of mechanical moralizing. A just share, said Carver, need not be a desirable share. A just share of income may leave a man miserable and in want. This observation led Carver to the main element of his distributive program; action must be taken to insure that just shares are desirable or, at least, viable shares of income. Carver pointed out that the main reason why a just share of income might not be a viable share is that the involved productive factor is too plentiful relative to the demand for it. Factor units bringing their owners income shares greatly in excess of an income needed for a decent standard of living stems largely from the scarcity of these factor units relative to the demand for their services. To bring about a more just distribution of income, Carver advocated increasing the supply of scarce factors and limiting the supply of plentiful factors. The prime focus of Carver's allocatlonal program was the factor labor. The most basic part of Carver's 636 program for labor was population control through, family planning and the restriction of immigration. Beyond this, Carver favored widespread education as the chief means of permitting workers to climb to higher levels of the voca tional ladder. Inasmuch as restrictive practices in business, the professions, and labor organizations could thwart the ambi tions of an upward mobile labor force, Carver was a relent less foe of all forms of monopoly. He regarded the annihil ation of monopoly power, wherever found, as an indispensa ble prerequisite to the establishment of distributive jus tice . William Smart is an example of those economists of the early twentieth century who, although willing to accept the ethical implications of the marginal productivity theory, were not particularly enthusiastic about it. Smart felt that the best that could be expected of an income dis tribution, at least in his own time, was that it not be founded upon force or fraud or upon birth or custom. Although he admitted that the income distribution in the Britain of his day (the turn of the century) was probably far from perfect, it was so much better than the distribu tion obtaining in previous centuries and in other countries that he said men ought to be fairly well content with it. Although the marginal productivity ethic no longer 637 enjoys respectability among most current economists, from time to time reformulations of it appear. One of the most recent of these revorkings of the theoxy was undertaken by Louis 0. Kelso and Mortimer J. Adler. Strangely enough, these two authors do not seem to realize that the marginal productivity theory is the basis of their work. Kelso and Adler hold that 90 per cent of the income of a modern industrial society is created by capital. If the income distribution were just, thax is, if income were distributed on the basis of marginal productivity, the bulk of the population would be in misery, for most people own little, if any, capital equipment. Our society has managed to survive, say Kelso and Adler, because the dis tribution of Income is unjust; income shares rightfully belonging to capitalists are expropriated by various gov ernmental and laboristic devices and are handed over to noncapitalists• Kelso and Adler declare that this redistribution is immoral. However, they realize that a moral distribution would lead to poverty among the bulk of the population, the stifling of mass buying power, the decay of our econony, and possibly to anarchy and revolution. Kelso and Adler, like Carver before them, argue that justice and viability in income shares must coalesce. Therefore, they propose to redistribute the ownership of 638 capital such that factor owners will receive viable shares of the aggregate income, and such that the income share of each recipient will be justifiably his by right of creation. Since the corporate form of organization is the greatest producer of wealth in this country, the program of Kelso and Adler centers upon facilitating the ownership of shares in corporate enterprise by each individual in our society. Each individual ought to own enough of the means of production, so that the income from his shares of stock plus earnings from the sale of such other factoral units that he may possess would yield him a viable income. Kelso and Adler carefully distinguish their plan from socialism in that the ownership of the means of pro duction would remain in private hands. Acceptance of a highly modified marginal productiv ity ethic characterizes the work of Raymond T. Bye and Ralph H. Blodgett. Bye and Blodgett favor distribution according to productivity and concurrently advocate greater equality in the distribution of income. These authors feel that not only is the present dis tribution of income unjust, but that marked inequality in the distribution of income, whether just or not, contributes to the malfunctioning of the economic system. Bye and Blodgett therefore propose an extremely detailed program designed to redistribute income so that it will be more 639 equally divided among persons. Once this is accomplished, it is their belief that the performance of the price mechanism will be improved in that it will be more respon sive to the wishes of a greater number of people than is now true. This, in itself, will further improve the Jus tice meted out in the economic order. Technical Exploitation The theory of exploitation when applied in the area of distributive ethics leads to results even more empty than those yielded by the marginal productivity ethic. The term "exploitation” was formerly construed to mean the receipt by a factor owner of less than the value of the marginal product of his factor units. If the factor owner received less than the value of the marginal product of the factor units, he received less than the factor units create, and he was therefore said to be exploited, the reasoning being that if he did not receive all of the income to which he was entitled, then someone else (the exploiter) must be receiving it. The most devastating blow to this thesis was the evolution of theories of impure and imperfect competition which conclusively demonstrated that under departures from the purely and perfectly competitive norms, all factor owners could not possibly receive the value of the marginal products of their factor units. Further, the newer theory 6*f0 showed that there was no exploiter; there was no one to whom moral fault could be imputed. The very nature of the competitive framework produced the situation in which pay ment to factor owners of the value of the marginal product of their factor units would more than exhaust total product or total revenue. The idea of exploitation was saved for awhile by simply redefining what it meant. Under the newer inter pretation, exploitation came to mean the receipt by a fac tor owner of less than the marginal revenue product of his factor units. This definition, too, ran afoul of later develop ments in economic theory, namely that conditions on the buyers* side, i.e., the employers* side of the market, could lead to a situation in which a factor owner would be paid less than the contribution of his factor units to the revenue of a firm. Investigations of monopsony, as this situation is known, have led to the virtually complete abandonment of any idea that this form of "exploitation" has any moral significance. In the absence of actions taken to mitigate the effects of monopsony on the rate of factor reward, the rational employer will find it profitable to pay the owners of the hired factors less than the marginal revenue product 6H of their factor units* Unless the profit motive and the competitive system as well, can be reasonably indicted as immoral, it is difficult to see how the action of the employer could be impugned. The answer to monopsonistic exploitation lies in actions taken to neutralize the effect of monopsony on the rate of factor reward. In the area limited to the factor labor, possible actions are collective bargaining wage agreements, minimum wage legislation, and the promotion of factor mobility. A Skeptic’s Contribution The American economist, Frank H. Knight, has devoted much of his career to a study of distributive justice. His contribution is mainly negative, but this is a valuable work. He has forcefully exploded most of the so-called "theories of distributive justice" by showing them to rest on faulty premises or to have been obtained by spurious reasoning. Knight is a pessimist on the prospect of obtaining distributive justice, his pessimism here being founded on a more basic disbelief in the ability of laymen to understand the workings of the economic order. Badly educated and sentimental moralizers have led the people to expect the unreasonable from the economic system. Moreover, they have led the bulk of the people to believe that if the economy 6*f2 does not function according to some "utopian” vision, it is possible to meddle with it until it yields the desired results• Knight disparages the proposals of ignorant reform ers by asserting that the economic system is so poorly understood that it is better to leave it alone. Incompe tent meddling can only make matters worse. One way to increase the sense of Justice, if not Justice or well-being itself, is indicated by Knight; people should be educated not to expect the impossible from the economic order. Knight's position is somewhat like that of Smart in that he believes that income distribution as effected in the free market is likely to have a measure of Justice about it. Nevertheless, he is considerably less sanguine about the existing distribution than was Smart, and he indicates that he believes that it is quite possible that there is a good deal of injustice in the present income distribution. He has no conclusive answer to this, and he believes that the same is true of anyone else. Knight points out that much injustice arises from inheritance, but he notes that little significant thought has been devoted to the resolution of the problem. Attacks upon injustices created by inheritance have been limited to inheritances of property. This does not solve the "injus tices” created by inheritances of beauty, brains, talent, 6*0 personality, physical strength, or health. What differ ence, asks Knight, is there in the injustices arising from being born to parents who axe unable to pass on material wealth and being bom blind? Knight's positive contribution to the literature of distributive justice is his suggestion of four ideals which must be considered if income is to be distributed justly. These ideals are need, equality, contribution, and the dignity of one's calling. He considers each in turn, show ing how a particular ideal must be considered if an income share meted out to a person is to be considered just, but he does not say--as no one could say— in what proportion each is to be used or weighed in determining a just income distribution• Pjgovian Distributive Justice The welfare economics developed by the Cambridge economist, Arthur Cecil Pigou, is applicable in its origi nal form to issues of distributive justice. Pigou's welfare economics is heavily based upon the ethics of hedonistic utilitarianism. Whatever deficiencies this branch of ethical thought may have for developing a principle of justice, its presence in Pigovian welfare economics gives a clear ethical foundation to Pigou*s work. Pigou* s fundamental psychological premise was that people have approximately equal capacities for satisfaction 6M+ Therefore, he reverted to the old classical Idea of welfare in holding that welfare would be increased by augmenting the volume of physical production. Considerations of jus tice bound Pigou to make this recommendation subject to the provision that the position of the poor would not thereby be worsened. Probably the best known of Pigou*s contributions to the field of welfare economics is his insistence that all costs and benefits must be counted before a true assess ment of welfare may be attempted. The methodology of measuring private gain can be used, but not the private measures themselves. Marginal cost and price are insuffi cient tools with which to assess the social impact of a particular economic act. They consider only matters internal to the firm. Social measures must consider exter nals. Therefore, Pigou utilized the marginal apparatus, but made it applicable to social problems by holding that welfare would be maximized when marginal social benefit was equal to marginal social cost. To further the cause of distributive justice, Pigou urged the transfer of income from the rich to the poor as well as the payment of bounties on items customarily bought by the poor. He endorsed a national minimum standard of living as an economic "bench mark" by which the need for income transfers and bounties would be gauged. 61+5 Pigovian welfare economics has been subjected to severe criticism by exponents of positive economics for its heavy reliance upon value judgments and interpersonal com parisons. Those critics who are interested in pursuing the question of what policy recommendations may be legitimately framed within the scope of positive economics have been attracted to what is commonly called the "new" or "Paretian" welfare economics. Paretian Welfare Economics The "new" or "Paretian" welfare economics is an attempt to produce policy recommendations without the neces sity of using value judgments or of making interpersonal comparisons. Nevertheless, the new welfare economics, like its value-infused counterpart, is based fundamentally upon the ethics of hedonistic utilitarianism. The attempt to avoid value judgments has attenuated the guiding principle of Benthamite utilitarianism, so that the rule of the greatest good for the greatest number has been evolved into the Injunction that it is a desirable course of action to increase the well-being of anyone or eveiyone if the posi tion of no one else is thereby worsened. The judges of personal well-being are the individuals themselves. Inter personal comparisons of well-being are not required; each individual searches his own mind to decide if he is worse or better off or has experienced no change in his well-being. Thus, under the Pareto criterion, the deter mination by one person that he would be made worse off in consequence of a proposed change is enough to stop a change from being made, even if everyone else in the world is made better off. The Pareto principle is, therefore, a unanim ity rule. The determination by individuals of their own levels of well-being does imply a strong value judgment, although the new welfare economics is supposed to be free of assess ments of value. The value judgment involved here is that people ought to get what they want. The fact that this value judgment is almost universally accepted does not make it any the less a value judgment. Although the Pareto criterion is supposed to enable economists to make recommendations, the type of prescrip tions they may make under the Pareto rule are of limited consequence, and are primarily restricted to matters of allocative efficiency. Given a certain quantity of goods X and Y and the indifference maps of two or more individ uals, economists can specify that the allocations of X and Y are unoptimal if the marginal rates of substitution for X and Y are not equal for all of the involved parties. In such a situation, economists can specify that the parties should trade X and Y among themselves until the marginal rates of substitution of one good for the other are equal 6*+7 for all parties. In equating their marginal rates of sub stitution of X for Y, the parties are graphically depicted as advancing to higher indifference contours, or at least one party is advancing while the others remain as before. The unanimity principle involved in the Pareto cri terion led a number of economists in the 1930*8 to conclude that chances for the practical application of the rule were nil, for in almost any likely policy change, someone would probably announce himself hurt, and under the criterion, the change would be precluded. Hope for the practical application of welfare eco nomics was revived by the formulation of several compensa tion criteria. The basic idea of the compensation princi ple is to allow desirable changes to be made even if someone is damaged. The offended party is to be compensated for his loss, the amount of the compensation supposedly being sufficient to make the loser(s) whole. Inasmuch as an offended party might not be induced to acquiesce in a pro posed change, it may be necessaxy to overcompensate him in order to gain his positive vote for the change. This is the essence of the Kaldor criterion which holds that a proposed change ought to be made, if those who gain from the change can compensate the losers, so that all parties are better off after the change has been made. Essentially the same principle can be applied to an 6*+8 opposite situation. Potential losers might he willing to pay potential gainers to forego a change. The so-called Hicks criterion holds that a proposed change ought to be made if the losers cannot profitably pay the gainers to forego a change. These two criteria are? usually spoken of as one, the Kaldor-Hicks criterion. Shortly after the enunciation of the Kaldor-Hicks criterion, it was shown that the application of this rule to certain situations produced ambiguous results. Under certain conditions, the making of a proposed change could be shown to be an improvement, and the reversal to the original situation from the newly attained position could also be shown to be an improvement. To eliminate this confusion, the Scitovsky criterion was developed; it holds that a proposed change ought to be made only if the gainers can compensate the losers, and, at the same time, the losers cannot pay the gainers to forego the change. Ethical Criteria Compensation criteria have been shown to be deficient in handling questions of ethical content. The paucity of the guidance to policy decisions inherent in the above described compensation criteria led some economists to argue for the frank inclusion of value premises in the body of welfare economics. The main contention of their criticisms of positive formulations of welfare economics 6^9 is the negligible recommendatory force possessed by policy statements purporting to issue from a wertfrei context• Little is a leader in the effort to introduce norma tive criteria into the body of welfare economics* Little’s main contribution is his own criterion* It goes beyond the content of the supposedly value-free criteria noted pre viously and introduces the ethical valuation of "goodness." A proposed change is approved under the Little criterion if it brings about a "good" redistribution of wealth* To this criterion of "goodness," Little adds the Kaldor-Hicks and Scitovsky criteria, although there is some doubt about the necessity of so doing* Little’s criterion requires a judge to rule on the goodness of a proposed change, and this has caused some controversy among those who interpret the idea as meaning that some despot or supernatural force must be necessarily involved. This is wrong in the author's opinion, inasmuch as the "judge" can be the people or some group (e.g., Congress) elected by popular vote. The Social Welfare Function The social welfare function is a device which permits economists to use the ethical convictions from any source to recommendations based upon rigorous analysis* The necessity for the development of the social welfare function approach was manifested by the inconse quential nature of the work done in a welfare economics 650 which was supposedly kept value free. The social welfare function itself is a norm of unambiguous moral significance. It states a ranking of the alternative positions in which different persons encounter different levels of well-being. Given a social welfare function, economists can work to describe the social opti mum in an ethically meaningful and scientifically rigorous way. Prom the viewpoint of economists, it may be a matter of small consequence as to the source of a social welfare function. It may be deemed to come directly from God or it may come from a tyrant. To individuals, however, the source of the social welfare function is, of course, a matter of profound importance. In Western society, the determination of courses of action rests, in the main, upon the people themselves. Therefore, it is not surprising that economists would tend to expect that the social welfare function furnished to them would be one which has been democratically selected. Some economists have turned their attention to the process of selection itself. The early results in this field of inquiry seemed to demonstrate that the social choice of a social welfare function was not an easy matter. One notable study, that of Kenneth J. Arrow, indicated that the results of attempting to arrive at the social choice 6 51 of a social welfare function were quite likely to turn out to be Inconsistent, or, if consistent, then the function may have been undemocratically selected. For some time following the work of Arrow and others who had come to similar conclusions, a note of despair prevailed in the work of those economists who were concerned with the social welfare function approach. Gradually, the gloom was disspelled as economists began to note that "^he work of Arrow and others used highly restrictive assumptions, and that the results were argued from ethical postulates of each author's own choosing. A number of economists noted that changing the postulates or altering the methodology would produce results that were less fraught with difficulty. The position of this dissertation is that these later developments themselves, although interesting, have produced results too restrictive and artificial to bear much relationship to actual ethical problems in the dis tribution of income. The Importance of Ethics One of the principal contentions developed by the author in Chapter XII was that no matter how much welfare economics might be bolstered by various supplementary cri teria, the discipline is fundamentally ill-equipped to handle serious ethical questions, including that of justice, 652 owing to itB roots in the ethics of hedonistic utilitarian ism. Nearly all contemporary philosophers agree that this branch of ethical thought is, by its nature, unable to generate a principle of justice. Over the centuries, the greatest names in human thought have addressed themselves to the problem of what is justice. The inability of these great minds to produce a satisfactory definition of justice is heartening to those of lesser mental powers who similarly cannot evolve any adequate conception of what justice is. Defining a particular form of justice although a difficult, if not an impossible task, appears to be some what easier than the work of defining justice in a general sense. Inasmuch as the focus of discussion in this disser tation is distributive justice, the author has chosen the work of the American philosopher John Bawls as a treatment of justice well-suited to the present study. Bawls defines justice as fairness, and holds that a situation of justice arises when mutually self-interested persons, each having a morality, can confront each other in a quest for conflicting ends and defend before each other that the principles on which each person operates are fair. In Christian ethics, justice is regarded by many theologians as a fora of love— an imperfect form of 653 brotherly love. The theologians do not deprecate justice; on the contrary they think it is probably the best expres sion of brotherly love of which men are capable. A number of prominent theologians are concerned with the problem of distributive justice. A fair summation of the thoughts of many of them would be to say that they regard justice to be the problem of economics and politics. Changing the philosophical foundations of welfare economics from hedonistic utilitarianism to some other basis can produce a profound difference in the outcomes yielded by economic analysis. At one extreme, the adoption of the existentialism of Jean-Paul Sartre would obviate any concern for the dis covery of a social welfare function, as Sartre's philosophy holds that there is no meaning to life; life is a rather bad j oke. At the other extreme, Scholastic philosophy with its roots deep in the Aristotelian infused moral dogma of the Roman Catholic Church, provides a foundation out of which welfare economics can say something meaningful about how income ought to be distributed. Although there have been a number of recent writers in this area, most of the work produced by Scholastic philosophers represents fundamentally the same philosophy expressed centuries ago by Saint Thomas Aquinas. The Thomistic principle of a just price or a just 65* f wage remains today as it has been for centuries, a custom ary income share— a share of income that will enable the recipient to live according to his station in life. The philosophy of Immanuel Kant— that there is a universal goodwill— facilitates the search for a consistent social welfare function by forming the basis for an assump tion that the social ordering is, after all, universally and irrevocably imposed, thus obviating any concern as to whether ethical standards are selected by a majority vote. The determination of a social welfare function by a majority vote has no necessary connection to either rela- vitistic or absolutistic ethics. For the purposes of this dissertation, it makes no difference as to whether people meet to define moral rules or whether they meet to obtain a consensus as to the content of some universal ethic. The problem of voting, so troublesome to some early investigators, is not nearly as vexing in practice as it is in theory. In practice, political democracies are not notably consistent, yet they have enough cohesion and agreement on values to survive and thrive. Economists need be no more consistent than the context in which they work. II. CONCLUSIONS Distributive Justice and the Marginal Productivity Ethic The theory of marginal productivity is an empirical hypothesis about factor demand and the distribution of 655 income on a functional basis. It is not a statement of moral desert. To paraphrase one succinct comment, partial derivatives (the marginal products) have no ethical content. The marginal productivity ethicists were in effect, and apparently unconsciously, attempting to superimpose the ethical basis of Anglo-American property law upon the mar ginal productivity theory in order to produce a doctrine of distributive justice. Anglo-American property law grants the rights of ownership to that which a person creates. By assuming that the theory of marginal productivity identi fies the product created by a factor of production, the marginal productivity ethicists thought that they had forged a key to the troublesome question of justice in income distribution. To the majority of the marginal productivity ethi cists, justice seemingly bears little relationship to the desirability of an income distribution. Justice is done if a person gets what his factor units create. Justice is not involved if the factor owner cannot live on the share of income created by his factor units. The marginal produc tivity ethic is softened in application, however, for the marginal productivity ethicists had no objection to enlarg ing the share of income of any person so long as that share went to the individual by right of creation. It is not clear that "productivity” can serve as the 656 basis of a fair reward. It is probably a part of the prob lem of distributive justice. ' ‘Productivity" as used in the marginal productivity theory depends upon the possession of productive capacity. This, in turn, depends upon one's stock of property, natural endowments, capacity to render a service deemed desirable by consumers, and the scarcity which one's productive resources bear to the demand for their services. The distribution of property cannot be divorced from the distribution of income. If the distribution of property is unjust, the distribution of income founded upon the distribution of property will be likewise unjust. Inheritance, both natural and legal, creates troublesome problems. Injustices produced by the inherit ance of wealth may be easier to mitigate than those caused by the inheritance of qualities having a genetic origin, but the justice of removing the former by, say, taxation, and the inability of society to do much, if anything, about the latter form of inheritance is, at least, open to ques tion. The problem of valuation is left out of most of the marginal productivity theories of distributive justice. Consumers may value tawdry or harmful goods and services highly, and attach a low value to worth-while goods and services. 657 A factor may have an enormous productivity today because it is scarce relative to the demand for its ser vices, Tomorrow, it may be in excess supply because some one has developed a substitute for it, or because the good or service it helps to produce has "gone out of fashion." Productivity cannot be completely disregarded in a study of distributive ethics. Despite the many faults which may be found in using it as the sole standard of desert, one cannot deny legitimately that productivity forms an important part of any meaningful canon of distrib utive justice. Exploitation Attempting to moralize from the theory of exploita tion leads to results destitute of ethical consequence much the same as in the use of the marginal productivity ethic • The chief reason for this ethical invalidity is that the theory of exploitation has no normative significance unless moral precepts are supplied to it from an external source. The use of the theory of exploitation as the basis for moralizing requires the assumption that the marginal prod ucts (the value of the marginal products or the marginal revenue products) are in some sense the property or product of the owner of a productive factor. An ethical theory of exploitation would seem to require the presence of an exploiter to whom moral fault 658 may be imputed. But in almost every instance of exploita tion as described by economists, it is difficult, question able, and usually unreasonable to attempt to identify who is morally culpable as an exploiter. Many cases of assumed exploitation have been shown to be cases of sub-viable wages involving no exploitation inasmuch as the workers involved were receiving their margi nal revenue products as wages. These cases simply involve low worker productivity which itself may be the cause and effect of distributive injustice. The author believes that much of the trouble with the concept of exploitation is semantic, and he joins in the suggestion that some other word ought to be employed by economists to describe the situation in which the owner of a productive factor is paid less than the marginal revenue product of his factor units. Prank H. Knight * a Contribution If Knight has a general thesis of distributive jus tice , it seems to be this: a share of income can be justi fied, to some degree at least, if it has been earned in a calling which the ethics of Western society would call moral, and if it is earned out of the conscious effort of the individual to develop the capabilities bestowed upon him by nature. 659 The Relationship of Pigovian Welfare to Distributive Justice The validity of criticisms of Pigovian welfare eco nomics may well depend upon the viewpoint one takes of what Pigou was trying to accomplish. Certainly, Pigovian wel fare economics cannot be regarded as a positive discipline. Even understood as a normative study, it is open to attack on the grounds that the interpersonal comparisons upon which it so heavily relies cannot be made with any assur ance that they are correct. Moreover, Pigou*s value judg ments have no more claim to be heard than the moral views of any other person unless it can be claimed that he pos sessed special ethical insights not possessed by the major ity of other persons. Of course, it may be asserted that Pigou*s value judgments are representative of the moral sentiments held by the majority of the persons in a given community (e.g., the United Kingdom). Whatever the criticism, it ought to be remembered that Pigou*s welfare economics is a frankly normative effort, that it attempts to be a true welfare economics. Bather than being “unscientific," Pigou was being realistic in his recognition that ethical canons must be incorporated into any body of thought purporting to make recommendations of what ought to be done to achieve an end defined in some way as being "good.* * Since Pigou*s welfare economics recognizes the need for ethical norms, it lends itself to 660 a consideration of distributive justice, regardless of what other defects it may possess. The New Welfare Economics The determined insistence of "positive" economists upon keeping the new welfare economics a wertfrei disci pline has raised serious doubts about the practical conse quence of any recommendations which may be properly made by welfare economists. Paretian welfare economics is not value free; indeed, it rests upon the ethics of hedonistic utilitarianism. This ethical basis is, however, much weaker than that found in Pigovian welfare economics. It is this grounding in the ethics of hedonistic utilitarianism, rather than the efforts of scholars to avoid entanglements in value judgments and interpersonal comparisons which leaves welfare economics unable to say much that matters about income distribution. Inasmuch as most contemporary philosophers feel that hedonistic utilitarianism is incapable of generating an adequate principle of justice, it seems manifest that wel fare economics based as it is upon an attenuated form of Benthamite ethics would be even less capable of comprehend- i ing the issue of distributive justice than is true of its parent philosophy. If, however, the utilitarian principle is construed 661 as being capable of yielding a doctrine of justice, much of the work done in theoretical welfare economics might be legitimately considered to have some bearing upon distribu tive justice. The author believes that the justice of Bentham and Sidgwick as manifested in welfare economics is inadequate to form a framework upon which a conceptual fabric of dis tributive justice can be formed. Bentham and Sidgwick were dealing with efficiency, and, thus, it is not surprising that the recommendations of the new welfare economics are readily reducible to propositions to improve allocative efficiency. The inability of the new welfare economics to * yield meaningful recommendations for distributive justice is clearly shown by the fact that welfare economists have nothing to say once the optimum allocation (i.e., the con tract curve in the Edgeworth box diagram) has been attained. Despite the preceding argument, welfare economics is not without applicability to problems of distributive jus tice. Once a just distribution is given or assumed, wel fare economics points the way to allocative efficiency. It is compatible with the principles of consumers' sovereignty, for it rests upon the principle that people ought to be allowed to do what they want with their incomes. It reveals the possible nonoptimality of various distributions of goods and services which can occur when certain goods are 662 subsidized or reduced in price to change the consumption patterns of selected consumers. The tenets of welfare economics suggest that if we have faith in the ability of people to order their own affairs, then once justice in distribution has been defined from some outside source, we should allow consumers to dispose of their incomes without interference. Obviously, there are a number of qualifica tions to this statement. The Social Welfare Function Given a social welfare function, the process of wel fare maximization may be described by the methodology of theoretical welfare economics. Early attempts to examine the social choice of a social welfare function produced negative or inconclusive results due, in part, to the apparent belief that a politi cal democracy operated in a fashion which could be ade quately described by basically mathematical models. The incontrovertible fact that political democracies do exist, survive, and grow suggests that the failure of the mathematical models of society to yield consistent results or to yield results compatible with the theory of political democracy arises in the models themselves rather than in the operation of a particular existing democratic society• Later writers have done much to expunge the sense of 663 futility which prevailed after the initial investigations of the social choice of a social welfare function produced rather dismal results. The continued existence of a particular democratic society suggests that there is enough of an agreement on basic values to produce a workable consensus of ethical opinion. This conclusion leads to the simple technique of counting heads to determine the ethical sentiments of the community. Provided with the judgment of the community, economists can undertake to recommend whether a desired end can best be achieved by a policy change or by a simple redistribution of income using the basic methodology of welfare economics. The methodology of welfare economics and the use of head counting may be combined to narrow the scope of possi ble agreements. Within a certain area, the precise outcome of a particular transaction may be left to the parties directly involved so long as they adhere to the general rules (laws) laid down by the community. Such a procedure does not seem to be necessarily antagonistic to the theory of political democracy. An Eclectic Theory of Distributive Justice The eclectic theory of distributive justice devel oped in Chapter XIII is not intended to be a definitive statement of what justice in the distribution of income is. 66* f It la mainly a synthesis of a number of the Ideas that have been surveyed and criticized within the pages of this dis sertation with the major addition of two assumptions. The author recognizes that his assumptions are value judgments, but a major contention of this dissertation has been that statements about the justice of the distribution of income cannot be made unless the theoretical construct includes value premises. The first major assumption is to take personal natural endowments as given. The second assumption holds that the ultimate distributive injustice is to be denied access to the productive process. If this idea epitomizes distributive injustice, then partial denials of access to the productive process must be lesser instances of injus tice. The severity of each particular act of distributive injustice varies directly with the degree of exclusion. Pull participation in the productive process requires that each individual be permitted to employ his natural endowments to the fullest extent. This means that he must be given the widest opportunity to develop such inherent qualities as he may possess, and having developed them, he must be permitted to employ them without being subjected to unjustifiable limitations upon their use. The Bawlsian concept of justice as fairness is help ful in assessing what constitutes "unjustifiable" 665 limitations upon the individual * s right to employ fully his natural endowments. This thesis of justice requires that the right of each individual to "produce himself" is sub ject to the right of every other individual to do the same thing. This means that in deciding who is to be allowed to do what, the individuals must meet in an attitude of fairness. We have to assume that the individual partici pants have a morality. The morality common to the involved parties is held to be that prevailing in Western society. The absence of moral parties in a transaction seems likely to preclude a just outcome. In a situation of justice, mutually self-interested parties are able to acknowledge before each other that their conduct in the pursuit of a desired end is fair. In an imagined confrontation, one individual urges upon other persons his right to develop and use his abilities, that he may participate to the fullest extent in the productive process. In such a context, it is not a valid objection for one person to deny another the right to personal devel opment simply because the objector lacks to the personal endowments of someone else. Envy will not change the dis tribution of natural abilities. It is a valid argument for the objector to contend that a proposed course of conduct by one person would interfere with his own right to par ticipate in the productive process in accord with his own abilities. Unresolved Problems The author realizes that a number of problems have been left unresolved in the dissertation. There is, for example, the problem of those whose developed natural abilities are insufficient to provide them with a viable or decent standard of living even though they are allowed to participate fully in the productive process. The author prefers to regard this situation much as did Carver and Byan by considering this to be a problem of charity rather than justice. Justice is not the only virtue. The author has restricted usage of the expression "distributive justice" to apply to situations involving actual participation in the productive process, for income distribution, in the first instance, comes from the produc tive process. Once participants have been dealt with justly, other adjustments may be required to redress the unfortunate position of certain individuals. Some pro vision must be made to provide for those individuals who cannot participate at all or only partially in the produc tive process. A final Note It has been said that an ethically optimal distribu tion of income requires that income be apportioned among persons such that the marginal social significance of each dollar going to each person is equal. This statement must 667 be properly supplied with ethical content to be applicable to the issue of distributive justice. By itself, however, the prescription does convey an important idea; income cannot be distributed on a once-and-for-all basis. It must be continuously redistributed. The ethical content needed comes from specifying what is meant by the "social significance" of income. 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Singer* The Role of tb* Bomriomin± as Official Adviser• Londonl George Allen and Unwin, Ltd., i$55. Jouvenel, Bertrand de. The Ethics of Redistribution. Cambridge, England: dambridge University Press, 1951. Jowett, Benjamin (trans.). Aristotle: The Politics. Hew York: The Modem Library, 19** 3• Kaldor, Nicholas. Essays on Value and Distribution. Glencoe, Illinois: The Pree Press, 1$66. Kslsen, Hans. What Is Justice? Berkeley and Los Angeles: University of California Press, 1957. Kelso, Louis 0., and Mortimer J. Adler. The Capitalf ft Manifesto. Hew York: Random House, 1958. Klein, Lawrence R. An Introduc t ion to Be gnome trie a. Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 1962. Knight, Prank Hynem&n. The Economic Organisation. Hew York: Augustus M. Kelley, inc., 1$$1. 671 * Knight, Prank Hyneman. The Ethioa of Competition and Other Bazars. Hew York: Harper ana Brothers^Publishers, Intelligence yid Democratic Action. Cambridge; _______ . Risk, Uncertal«~by and Profit. 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London: Macmillan and Co., Limited, 1950. 676 Pigou, Alfred Cecil. Incone. London: Macmillan and Co., Limited, 19*+$* _______• Income Revisited. London: Macmillan and Co., United, I$55. Plato. The Republic. Trans. W. H. D. House. Edited by Eric H. Warnington and Philip G. House. New Tork: The New American Library (Mentor Books), 1961. Heder, Melvin Warren. Studies inthe Theory of Welfare Economics. New York: Columbia university £ress, 19^7. Riesman, David, Nathan Glaser, and Heuel Denny. The Lonely Crowd. New York: Doubleday Anchor Books, 19531 Robbins, Lionel • An Essay on the Nature and Significance of Economic Science. Second edition* London: Macmillan and Co., Limited, 19^0. Robertson, Sir Dennis H. Lectures on Economic Principles. 3 vols. London: Staples Press, liimlted, 1958. Robinson, Joan. An Essay on Marxian Economica. London: Macmillan and Co., Limited, 1957. . The Economics of Imperfect Competition. London: Macmillan and do., Limited, l9^. Ho gin, Leo. Tha Mining awj Validity Of EQftnnaifi Theory. New Tork: Harper and Brothers, Publishers, 19^6* Hothenberg, Jerome. The Measurement of Social Welfare. Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 19ol. House, W. H. D. (trans.). Plato: The Republic. Edited by Eric H. Warnington and Philip S. House. ~ New Tork: The New American Library (Mentor Books), 1961. Hueff, Jacques. Prom the Physical to the Social Sciences; Introduction to a Study or Beimo^a Ethical Theory. Trans. Herman Green• Baltimore: The Johns Hopkins Press, 1929* Ryan, Ht. Her. John A. A TA'rimr . Hew Tork: The Macmillan Company, 1920. Distributive Justice. New York: The Macmillan dompany, 19**2. 677 Scarlett, William (ed.). The Christian Demand for Social Justice. Hew Tork: The Hew Amerloan Library, Schumpeter, Joseph A. c * p i ism. Socialism. nomocracy. Third edition. Hew Tork: Harper and brothers, 1970* Scitorsky, Tibor. Welfare and Competition: The Econoatics of a Pu.]^y Ployed Economy. Chicago: ftichard 5. Irwin, Inc., iy5l. Sennholz, Mary Ced.). On Freedna arid Free Ento-cpr-i^e: gssars in Honor of ludwig vonMissal Princeton: Hew Jersey: i. van Hostrand Company, Inc., 1956. Sidgwick, Henry. The Methods of Ethics. Seventh edition. Chicago: The University of Chicago Press, 1962. Simons, Henry C. Economic Policy for a Free Society. Chicago: The XTnlvereity of Chicago Press, l<Wo. Smart, William. The Distribution of Income. London: Macmillan and Co., Limited, 1923. _______• Second Thoughts of an Economist. London: Macmillan and CoTV Limited, l£l6. Smith, Adam. The Wealth of Hat ions. Edited by Edwin Canaan Hew Tork: ihe Modem Library, 1937. Stamp, Sir Joslah. Motive and Method in a Christian Order. London: The Epworth Press, 1936. Stark, W. The Ideal Fourd»-hirvnq of Economic Thought. Hew To rlc: Oxford University £ress, 19*+^~ Stigler, George J. Production and Distribution Theories. Hew York: The Macmillan Company, 194-1. Temple, Most Rev. William. Christianity »**d Social Order. London: SCM Press, Ltd., 1$$0. Thomson, J. A. K. (trans.). Aristotle: The Ethics of Aristotle. London: George Allen and iJnwln, Ltd., Tillich, Paul. The Religious Situation. Trans. H. Richard Hiebuhr. Hew Tork: Living Age Books, 1959. Uhr, Carl G. Economic hnf>±rlw»s of m cksell. Berkeley and los Angeles: University of California Press, I960. 678 Veblen, Thorstein. The Theory of the Leisure Class, Few York: The Few American Library (Mentor Books), 1958. Walras. Ldon. Elements dtBcojaneie Politique Pure ou Theorie de la Richesee Socials. EditIon definitive. Paris: H. Hcbon ei £. Durana-An*las, 1926. Elements of Pare Economics or the Theory of Social Wealth. Trans. William Jafrd. Londont George Allen and Unwin, Ltd., 195V. Walsh, Vivian Charles. Scarcity and Evil. Englewood Cliffs, Few Jersey: Prentice-Hall, Inc., 1961. Weintraub, Sidney. An Approach to the Theory of Income Distribution. Philadelphia: Chilton Company, 195o* Weisakopf, Walter A. The Psychology of Ecqt^«i - Chicago: The University of Chicago tress, 1955. Wicksell, Khut. Value. Capital, and Rent. Trans. S. H. Pro we in. Few fork: Hin*h«-rt. and Co., Inc., 195V. Yaaane, Taro. for Econoaiets. Englewood Cliffs, Few Jersey: Prentice-Hall, Inc., 1962. Zeuthen, Pritz. Eeftnn«£c Theory and Method. Cambridge: Harvard University Press, 1955. B. BOOKS: PARTS OP SERIES Arrow, Kenneth J. Social Choice and Individual Values. Cowles Commission for Research in Economics, Monograph Ho. 12. Few Yoxk: John Wiley and Sons, Inc., 1951. Carver, Thomas Nixon. The Essential Factors of Social Evolution• Harvard Sociological Studies, Vol. I. Cambridge: Harvard University Press, 1955. Chamberlin, Edward H. The Theory of Monopolistic Competi tion. Seventh edition. Harvard Economic Studies, Vol. XXXVIII. Cambridge: Harvard University Press, 1958. Dempsey, Rev. Bernard W. The Frontier Wage: The Economic Organization of Pg*a Aicants. Unnumbered volume in tne Jesuit Studies. Chicago: Loyola University Press, I960. 679 IXiesenberry, Janes S. Income. Saving, ^ Theory of Consumer Behavior. Harvard Economic Studies. Vol. miVill. Cambridge: Harvard University Press, 19^9 • Peliner, William, and Bernard P. Haley (eds.). Reading* in the Theory of Income Distribution. Vol. Ill of The &erieasfBe published Artie lea on Economics. 8 vole. Philadelphia! The Blakiston Company, 1951. Jaffa, Raymond. The Prafpa^tia Conception of Justice. University of California Publications In Philosophy, Vol. XXXIV. Berkeley and Los Angeles: University of California Press, 19o0. Samuel son, Paul A. Poundations of Boomomt* A^fiyais. Harvard Economic Studies, Vol. ujuul. Cambridge: Harvard University Press, 1958. Stigler, George J., and Kenneth E. Bouldlng (eds.). Beading* iw P^ioe Theory. Vol. VI of The Series of Republished Articles on Economics. 8 vols. Homewood, Illinois: Richard P. Irwin, Inc., 1952. Taylor, 0. H. Economics and Liberalism: Collected Papers. Harvard Economic Studies, Vol. XCVI. Cambridge: Harvard University Press, 1955. C. PUBLICATIONS OP LEARNED SOCIETIES AND OTHER ORGANIZATIONS Carver, Thomas Nixon. nThe Economics of Preedom," The Economic Sentinel. Vol. 3, No. b. Los Angeles: Los Angeles Chamber of Commerce, u.d. Dempsey, Rev. Bernard W. Interest: end tt*T 3TT- Washington: American Council on Public Affairs, 19*+3. Palk, Richard A. Martin Buber and Paul Tillich: Radial Politics and Religion I Vacuity Papers, 5th Series. New Tone: The National Council of the Protestant Episcopal Church, 1961. D. PERIODICALS 680 Alchian, Arsen A. "The Meaning of Utility Measurement," > riean Economic Review. X1VIII (March, 1953)* 26- 50. Archibald, 0. C. "Welfare Economice, Ethics, and Essen- tialism," Economica. XXVI (Hovember, 1959), 316-327. 6ald%rin, Robert E. "A Comparison of Welfare Criteria," Review of Economic Studies. XXI (1953”5*f), 15b—lol. Bator, Francis M. "The Simple Analytics of Welfare Maximi zation." The American Economic Review. XLVII (March. 1957), 22=W.--------- ------------ Baumol, William J. "Community Indifference." Review of Beonoaie Studies. XIV (19**6-19**7), Mt-M-o. Bergson (Burk), Abram. "A Reformulation of Certain Aspects of Welfare Economics," The Quarterly Journal of Econom ics. LII (February, 1938), 310-33^. "On the Concept of Social Welfare," The Quarterly Journal of Economics. LTVIII (May, 1951 *), 233*252. Blau, Julian H. "The Existence of Social Welfare Func tion," Econometrics. XXV (April, 1957), 302-313. Boulding, Kenneth E. "Income or Welfare?" Review of Economic Studies. XVII (19^9*1950), 77-86. Douglas, Paul H. "Are There Laws of Production?" The American Beonoaift XXXVIII (March, 19^8), l-*fl. Fisher, Franklin M. "Income Distribution, Value Judgments, ana Welfare," The Quarterly Journal of Economics. LXX (August, 1956), 3S0-J +2l f. . and Jerome Rothenberg • "How Income Ought to Be distributedx Paradox Enow," The Journal of Political Economy. LXX (February, 19o2), 88-93. "How Income Ought to Be Distributed: Paradox Lost," The Joum*? of Political Economy. LXIX (April, 1961), l63-l86. Fleming, Marcus. "A Cardinal Concept of Welfare," The Quarterly Jonmal of Economics. LXIV (August, 1^52), 366-38^. 681 Fletcher, Joseph. "Situational Ethics: A Hots for Busi ness ManagementUniversity of Washington Business Review. XX (October, I960), 15-28. Graaff, Jan de V. "On Making Recommendations in a Democ racy," The Bcor»ft»iq Journal. LXII (June, 1962), 293-298. Haney, Levis V. "The Social Point of View in Economics," The Quarterly Journal of Economics, XXVIII (May, 1911 *), 115-139. Harsanyi, John C. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility,." The Journal of Political Economy. XLIII (August, 195$), 309-321. Harrod, Roy. "Scope and Method of Economics," The Economic Journal. XLVIII (September, 1938). Hicks, John Richard. "The Poundstions of Welfare Econom ics," The Economic Journal. XLIX (December, 1939), 696- 712. "The Rehabilitation of Consumers' Surplus," Review of Economic Studies. VIII (February, 19^1), 108-116. Hildreth, Clifford. "Alternative Conditions for Social Orderings," Econometrics. XXI (January, 1953), 81-91* Xaldor, Nicholas. "Welfare Propositions and Interpersonal Comparisons of Utility." The Economic Journal. XLIX (September, 1939), 5**9-5$2l Kaysen, Carl. "The Capitalist Manifesto," The New Republic CXXXVIII (March 17, 1958), 20-21. Kennedy, Charles M. "The Economic Welfare Function and Dr. Little's Criterion," Review of Bcon«n*e Stu^i»»T XX (1952-1953), 137-1^2. Lelbenstein, Harvey. "Notes on Welfare Economics and the Theory of Democracy," The Bconnnift Journal. LXXXI (June, 1962), 299-319. Levin, Harvey J. "Standards of Welfare in Bconomlc Thought," The Quarterly Journal of Economics. LXX (February, 1956), 117-138. Little, Ian Malcolm David. "The Economist and the State," Review of Economic Studies. XLVII (19k *-9"1950), 75-76. 682 Little, Ian Maico 1m David. "Social Choice and Individual Values," The Journal of Political Economy. LI (October, 1952), Miahan, E. J. "A Survey of Welfare Economics, 1939-1959," The Eoonoiio Journal. LXX (June, I960), 197-257. Mulcahy, Richard E. "The Welfare Economics of Heinrich Pesch," The Quarterly Journal of Economics. LXIII (August, 19*9), 3*2-359. Samuelson, Paul A. "Evaluation of Real National Income," Oxford Economic Papers. New Series, II (January, 1950), l-*fO. "Social Indifference Curves," The Quarterly Journal of Econnmifta. LXX (February, 195o), 1-22. Scitovsky, Tibor. "A Note on Welfare Propositions in Economics," Review of Economic Studies. H (November, 19*fl)» 77-88" Streeten. Paul. "The Measurement of Social Welfare," The American Economic RaviawT LII (September, 1962), 825“ Strots, Robert H. "How Income Ought to Be Distributed} A Paradox in Distributive Ethics," The Journal of Political Economy. LXVI (June, 1958), 189-205. "How Income Ought to Be Distributed: Paradox Seaained.” The Journal of Political Economy. LXIX (June, 1961), 271-278. Worland, Stephen. "Justice and Welfare Economics," Review of Social Economy. XVII (September, 1959), 97-111. Zeuthan, Frits. "Science and Welfare in Economic Policy," Ths^^aarter^v^ Journal of Economic s. LXXIII (November, E. ESSAYS AND ARTICLES IN COLLECTIONS Aquinas, St. Thomas. Theoloaica. Reprinted in Early Economic Thought. Arthur Ell Monroe, editor. Cambridge: Harvard University Press, 1951. Pp. 53-6*+. 683 Bent ham, Jersey. "In Introduction to the Principles of Morals and Legislation," Beading* History of Economic Thought. S. Howard Patterson, editor* Hew "fork: Mcftraw-Hill Book Company, Inc., 1932. Pp. 179-180. Bloom, Gordon P. "A Reconsideration of the Theory of Exploitation," Headings in the Distribution of Income. William Fellner and Bernard F. Haley, editors. Vol. Ill of The Series of Republished Articles on Economics. 8 t o Is . Philadelphia: The iilakiston Com pany, l$5l. Pp. 2^5-277. Boulding, Kenneth S. "Religious Foundations of Economic Progress," Business and Religion. Edward C. Burak, editor. Hew forJEl Harper ana Brothers, 1959* Pp. 119-13**. "Welfare Economics," A Survey of Contemporary Economics. Vol. II. Bernard #. daisy, editor. SomevooT7 Illinois * Richard B. Irwin, Inc., 1952. Pp. 1-31 *. Clark, John Maurice. "Distribution," Readings in the Theory of Income Djstrihutlon. William Fellner and Bernard P. Haley, editors. Tol. Ill of The Series of Republished Articles on Economics. 8 rols. Philadelphia: The Blaklston Company, 1951. Pp. 58-71. Dempsey, Bernard W. "Just Price in a Functional Economy," Eaaava in Beonftn^. Tbnnfrh^. Joseph J. Spengler and William R. Allen, editors. Chicago: Rapid McHally and Company, I960. Pp• *f5-60. Fisher, Allan G. B. "Alternative Techniques for Promoting Equality in a Capitalist Society," Economic Issue* Policies. Arthur L. Grey and John E. Elliott, editors. Boston: Houghton Mifflin Company, 1961. Pp. 281-286. Gustafson, James. "Justice," A Hyxdbook of Christ lam Theology. Marvin Halverson, editor, iew YorEt living Age Books, 1958. P. 192. Harris, Abram L. "The Corporate State: Catholic Model,1 Economies and Social Reform. Hew York: Hamer and Brothers, fSUshers,»5B. Pp. 308-3»t5/^ Kant, Immanuel. "The Fundamental Principles of the Meta physics of Morals," Kant*s Critique of Practical Reason y d Other Works on the Theory of m f e f " Trans. C. K. Abbott. Hew York: Longmans, Green and Co., 68*+ 1923* Reprinted in Loyd D. Easton (ed.). Ethics. Policy. and Social Ends. Dubuaue. Iowa: Wm. C. Brown. BSipdy; T555: 16^-163. Kelson, Hans. "Aristotle's Doctrins of Justice," What Is Justice? Berkeley and Los Angeles: University of California Press, 1957. Pp. 110-136. ______. "Platonic Justice," What Is Justice? Berkeley and Los Angeles: University of California Press, 1957. Pp. 82-109. _______• "What Is Justice?" What Is Justice? Berkeley and Los Angeles: University of California Press, 1957. Pp. l-2*t. Knight, Prank H. "Sons Fallacies in the Interpretation of Social Cost," Headings in Price Theory. George J. Stigler and Kenneth E. Boulding, Editors. American Economic Association Series of Republished Articles on Economics, Vol. VI. Chicago: Richard D. Irwin, Inc., 1952. Pp. 160-179. Lachman, L. H. "The Market Economy and the Distribution of Wealth," On Freed< - > ■ Trt> Enterprise. Mazy Sennholz, editor. Prince ion, sew Jersey: D. Van Hostrand Company, Inc., 1956. Pp. 175-187. Leigh, Arthur H. "Von Thunen's Theory of Distribution and the Advent of Marginal Analysis," Essays in Eoononic Though^, Joseph J. Spengler and William R. Allen, editors. Chicago: Rand McNally and Company, 19o0. Pp. 553-576. Muelder, Walter G. "Ethical Aspects of Income Distribution and Consumption," American Income and Its Use. Elizabeth E. Hovt«~et al.. editors. New York: Harper and Brothers, 195**. Pp. 307-3^1. Niebuhr, Reinhold. "The Law of Love in Politics and Economics," An Interpretation of Christian Ethics. New York: Living Age Books (Meridian Books}, 1956. Pp. 127-177. . "The Relevance of an Impossible Ethical Ideal," An Interpretation of Christie* ! Hew York: Living Age Bodks CMeridian Books), 1956. Pp. 97-123. Rawls, John. "Justice as Fairness," Justice and Social Policy. Frederick A. Olafson, ediior. Riglewood cliffs, New Jersey: Prentlce-Hall, inc., 1961. 685 Read. Leonard E. "Unearned Riches," On freedom and Free jbn-fc^yp-riae. Mary Sennhols, editor” Princeton, flew Jersey: B, Tan Eostrand Company. Inc.. 1956. Pp. 188-195. Reder, Melvin W. "Comment" on Kenneth E. Boulding, "Wel fare Economics," A Surrey of Contemporary Economics. Vol. II, Bernard FT riaiey, editor.Homswood,^ Illinoiss Richard D. Irvin, Inc., 1952. Pp. 3^-36. Robertson, Dennis H. "Wage-Grumbles," Reading* ^ ^ Theory of Income Distribution. William Pellner and Bernard P. Haley, editors, vol. Ill of The|Series of Republished Articles on Bconnyie*- 8 role• Philadelphia: The Blakiston Company, 1951. Pp. 221- 236. Robinson, E. A. G. "Pore word" to W. A. Jo hr and H. W. Singer, The Role of the Economlst as Official Adviser. London: George Allen and Unwin, Ltd., 19??. Rothbard, Murray N. "Toward a Reconstruction of Utility and Welfare Economics," On Pree^ f Enterprise. Mary Sennhols, editor. Princeton. Mew Jersey: D. Tan Eostrand Company, Inc., 1956. ?p. 22*»—262. Samuel son, Paul A. "Comment" on Kenneth E. Boulding, "Welfare Economics," A Survey of Contemporary Econom ics. Tol. II, Bernard P. Haley, editor, ftomswood. Illinois: Richard D. Irwin, Inc., 1952. Pp. 36-38. S tree ten, Paul. Appendix to Gunner Hyrdal, The Political Element in Development of Eoonomle T&eory. Trans. Paul Streeten. Cambridge: Harvard University Press, 195^. Pp. 208-217. P. UNPUBLISHED MATERIAL Elliott, John E. "Economic Methodology and the Analysis of Policy Objectives," u.d. (Mimeographed.)

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Creator Cole, Charles Leland (author)

Core Title Income Distribution And The Social Welfare Function: A Study Of Theories Of Distributive Justice

Degree Doctor of Philosophy

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, theory,OAI-PMH Harvest

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Advisor Garis, Roy L. (committee chair), Elliott, John E. (committee member), Gould, John W. (committee member)

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