THE PROBLEM OF DISTRIBUTION
This discussion of the problem of distribution is drawn from a working paper titled The Major Problematics of Interdisciplinary Social Theory. (D. H. Bowles 2023)
There are four principal, persistent “problematics” (or more simply, “problems”) that recurrently present themselves for solution in interdisciplinary social theory. They are:
- The problem of human nature
- The problem of relativism
- The problem of distribution
- The problem of consciousness
Not surprisingly, the four problems are not independent of one another, but are inter-related. The purpose here is to provide a conceptual introduction to each of these problems in turn, followed by a brief introduction to the ‘global social theory’ framework for the comparative analysis of interdisciplinary social theory paradigms.
Here, we consider the problem of distribution.
The Problems of Production and Distribution
Human beings are a fundamentally social species; we live and thrive in groups. A human child who lives and grows in isolation (if it is able to survive at all), when reunited with society is not recognizably human. Although we can be (and often are) individually competitive as well, our collective survival depends on our ability to live cooperatively. One crucial aspect of that cooperative capacity is what we will call (following Marx) the social process of production. The process is a collective, social process because no one produces everything they consume. We cooperate in the production of what we need collectively as a group, and the group shares in its distribution and consumption.
In the earliest stages of development, human social groups were what has been described as “hunters and gatherers.” In these early stages, collective production was for the most part limited to a subsistence level: “production” was limited to what was necessary for the groups’ immediate use, and there was no surplus. It was only with the development of fixed settlements and agriculture that levels of productivity made it possible for collective production to exceed subsistence levels of consumption, and we begin to observe the accumulation of a social surplus. And, with the production of a social surplus, we find the emergent capacity of some individuals in the group to appropriate a share of that surplus, while others remain relegated to subsistence levels of consumption. This is the origin of the problem of distribution, which is manifest in systems of social stratification, or class structure; it is a well-known problem in ethical philosophy, to which the entire field of distributional ethics is devoted.
Following the agricultural revolution, the appropriation of surplus made it possible for a relatively small number of individuals in the elite classes to accumulate wealth, while the masses continued to live at a more or less subsistence level. The source of real wealth (economic wealth, that is, not financial wealth represented by money stocks) is constituted in productive property, and the productive property of this period was land. And land, as a category of productive property, was both scarce (i.e. of limited supply) and of varying fertility (or productive capacity).
All this changed with the industrial revolution:
The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground–what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?
Karl Marx and Frederick Engels
Manifesto of the Communist Party (1848)
With the industrial revolution, a whole new category of productive property was created, neither inherently scarce, nor limited in its productive capacity: capital. In comparison to the handcrafting processes that preceded it, the productive capacity of capital (manifest in the machine production process) is, for all practical purposes, unlimited. The productive capacity of capital has the demonstrable capacity to eliminate material scarcity for the whole population of the world, and the introduction of capital as a new class of productive property in the industrial revolution could be regarded, throughout the 19th and 20th centuries at least, as an effective ‘solution’ to the material problem of production.
Here in the 21st century, however, it’s becoming increasingly clear that unfettered industrial production has begun to exceed the limits of global environmental capacity to absorb its contaminant by-products without catastrophic effects on the global climate. At this point, instead of asking “What can we produce?,” we find we must begin to ask the question, “What should we produce?” This effectively subsumes a transformed problem of production under the problem of distribution. And the problem of distribution most certainly continues to abide with us.
The Problem of Distribution in Classical Political Economy and Modern Social Theory
In our discussion of the problem of human nature, we traced the beginnings of modern social theory in the Enlightenment to the publication of Adam Smith’s Wealth of Nations in 1776. Smith’s treatise is the first systematic, synthetic statement in the field of what becomes classical political economy, the principal historical proponents of which are Adam Smith, David Ricardo, and Karl Marx. Here is a noteworthy excerpt from the Preface to Ricardo’s Principles of Political Economy (1817):
The produce of the earth–all that is derived from its surface by the united application of labour, machinery, and capital, is divided among the three classes of the community; namely, the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated. . . . To determine the laws which regulate this distribution is the principal problem in Political Economy. [emphasis mine]
In 1971, Joan Robinson–the first prominent female economist, colleague of John Maynard Keynes and Piero Sraffa at Cambridge, author of The Economics of Imperfect Competition (1933; also known as the theory of oligopoly)–gave the Richard T. Ely presidential address to the annual meeting of the American Economics Association. Here is a notable excerpt from that address:
We have not got a theory of distribution.
The Struggle over Distribution of the Surplus
Prior to the advent of the modern world and the erosion of ecclesiastical authority by science, the problem of distribution was settled by a doctrine called ‘just price.’ Agricultural productivity and the output of handcrafted goods was more or less stable. The agricultural surplus was largely appropriated by the landed aristocracy, and the peasantry lived at an effective subsistence level. Tradesmen and merchants were confined by the doctrine of ‘just price’ to set prices for their goods that would 1) cover their legitimate costs, and 2) provide enough profit (surplus) for them to live in a manner suitable to their established social station. That is, the taking of ‘excessive’ profits (the unsanctioned appropriation of surplus) was customarily prohibited.
Once ecclesiastical authority had been diminished, the just price doctrine could no longer be relied upon to control exchange prices for both the factors of production and finished goods, and thus constrain the appropriation of surplus by the rising entrepreneurial middle class. A new rationale for the legitimacy of claims on the surplus was required. But the new rationale would have to adjudicate among the claims of a new class structure: hereditary landlords, the emerging entrepreneurial capitalist class, and the new working classes: the peasantry, forced by pastoral enclosure into the growing urban industrial centers to provide factory labor. It was a class struggle, indeed, but the struggle was for a new ‘legitimating ideology’ for distribution of the surplus. And the stakes were higher than ever: with industrial output, the surplus was now beginning to grow at an astonishing rate.
This, as Ricardo observed in his Preface to the Principles, was the primary requirement of classical political economy, of modern social theory: to determine the laws which governed distribution of the surplus among land, labor, and capital. Choice of the term ‘laws’ here to characterize the object of inquiry is no accident: what was required was an incontrovertible rationale equal to the former authority of the Christian Church, or at least to the subsequent achievements of the natural sciences in discovering the laws of nature. And for classical political economy, for first Smith, then Ricardo, and for all the others who followed them, there was no question but that the ends-in-view of this pursuit were laws that–in the interest of ever-increasing social productivity and wealth–would secure the claims of capital to the social surplus. A rising tide would then lift all boats.
All the historical and contemporary debate in what originated as political economy and what is now known as the academic discipline of economics, circling around value theory and price theory, remains ultimately about justification of what today are still competing claims to the social surplus between capital and labor.
The Neoclassical ‘Solution’
When Joan Robinson asserted in front of the assembled luminaries of the academic discipline that was by then called economics that “We have not got a theory of distribution,” she was talking about what is commonly referred to as the marginal product theory of distribution first formalized by John Bates Clark in 1899.
The substantive transition from political economy to economics occurred gradually over the course of the 19th century. It was brought about by what is usually called the ‘marginalist revolution,’ which was really more of a cumulative theoretical and methodological evolution, culminating with the 1890 publication of Marshall’s Principles of Economics, which eventually displaced John Stuart Mill’s 1848 Principles of Political Economy as the standard textbook of the field.
The marginal product theory of distribution is a central tenet of marginalist, or neoclassical economics. It relies on the calculus of marginal analysis to construct a formal mathematical system in which each factor of production earns the value of it’s marginal (added) contribution to total output as its return, in the form of wages to labor, interest to capital, and rent to land. These are the costs of production. Total revenue less total cost equals profit (i.e., the surplus). It’s important to note that in this formal system, profit is a residual, not an earned marginal return. And the claim to this residual is essentially a property right claim by the ownership of capital to 100 percent of the surplus . . . plus interest, of course.
At first blush, this looks like a pretty good candidate for the ‘natural law of distribution’ for which Ricardo, et al. had set out in pursuit.
The value of marginal product theory as a legitimating ideology for the distributional ethics of a capitalist market system rests on two propositions:
- That it is demonstrably, empirically true that the returns (rent, wages, interest) to factors of production (land, labor, capital) in a ‘competitive’ economy are equal to the value of their marginal contribution to total output; and
- That this demonstrably true fact (together with the property right claim on 100 percent of residual surplus by the ownership of capital) represents an inherently ‘fair’ solution to the problem of distributional ethics.
Under scrutiny, however, marginal product theory can sustain neither of the above claims; thus, Joan Robinson’s 1971 assertion. Efforts to validate the theory empirically are riddled with flawed assumptions (see the Cambridge capital controversy) and methodological tautologies (is W=MPV, or is MPV=W? Or is it both?). The claim to prima facie, self-evident ‘fairness,’ meanwhile, dissolves with minimal interrogation. For example, why should factors, on average, receive the value of their marginal contribution as a return, rather than their average contribution (or perhaps something in between)? The only genuinely honest answer to that question is “because then profits would be zero (or, at least, not maximized).” Or, since profits are a residual rather than the return to a factor of production, what is the fairness (ethical) argument, on the theory’s own terms, for the claim to 100 percent of profits? Of course, on the theory’s own terms (the measurable value of the marginal contribution of factors) there is no fairness argument for that claim at all. The only possible answers will inevitably revolve around either:
- the untrammeled (unlimited and unlimitable) property rights of capital ownership over the social surplus . . . to which the marginal product theory’s prima facie claim of ‘fairness’ does not apply and which must be adjudicated independently, on its own terms; or
- provisions for investment or incentives to risk, which may be fair enough . . . but there is no empirical basis supporting any claim that 100 percent of profits is required for either of these.
Social Stratification and the Appropriation of Surplus
Social strata, or the class structure of a society, can be effectively defined in terms of the differential capacity of the various classes to appropriate a share of the social surplus. For a detailed exposition, see Bowles (2013), ‘Toward an Integrated Theory of Social Stratification.’
What is ‘Global’ Social Theory?
Download working paper: The Major Problematics of Interdisciplinary Social Theory (D. H. Bowles 2023). See paper for References.