Income distribution

The version of the classical theory of value briefly outlined in the preceding paragraphs maintains the classical assumption that the level of wages depends on the specification of a subsistence bundle.

The idea that wages are subject to determination in this way has lost plausibility in the period since the publication of the great texts of the classical economists in the eighteenth and early nineteenth centuries. Modern theorists have, therefore, modified this element of the theory, and in so doing arrived at a striking conclusion.

If we treat the wage as a variable rather than a fixed magnitude, this means that the market system contains an element of indeterminacy. Variability of the wage means variability of the surplus and thus of profit for a given production structure. Thus, given the productivity of labor and the social division of labor, the distribution of the product between labor and the owners of capital remains to be determined.

It might be possible, then, to consider the distribution of income the outcome of a struggle between competing claimants rather than something built into the structure of reproduction itself as the classical model originally would have had it. That structure sets limits on distribution marked on one end by the level of profit or surplus were the wage zero and on the other by the level of the real wage were surplus equal to zero. But between these levels, the conditions of reproduction do not fix income distribution.

The next step is to identify the claimants as social classes defined by their relation to the means of production.

Focusing on this struggle moves political economy onto a different terrain than that emphasized in the first section of this chapter. That depiction of political economy in the classical vein was the study of the capacity of the economy to sustain itself. The economic refers us to an institutional reality, the market; the political refers us to the state, also an institutional reality. Political economy concerns the logic of the relation between these two in­stitutions. The issue of separability is central.

When we move to the terrain of struggle between social classes over the distribution of income, the idea of what is political economy shifts. Here the economic is not first a sphere, the economy; it is the process of the material reproduction of goods and provisioning of needs. The political refers us first not to the state but to the configuration of social classes and class relations. Maurice Dobb (1936) placed special emphasis on this interpretation of the political in classical political economy.

Of course, a question can be raised concerning the sense in which the interrelation of classes can be the political dimension. Indeed, in the more recent contributions by those influenced by the classical method, the explicit­ly political element rarely appears in any systematic form. The issue is left hanging.

In many cases, the identification of the political with class relations is more an allusion to an argument than an argument itself. In Chapter 3, on the Marxian approach, we will see how this argument might develop. Indeed, the problem posed here cannot but point us toward the Marxian theory as heir to the classical. For the moment, we will only lay out the issue and identify its classical roots: the sense in which it depends on the classical theory and the point at which it moves beyond that theory.

It is striking that those economists closest to the classical school in analytical framework use that framework to support an approach to political economy very different from that of the classical economists. This was Marx’s own method. He took over the analytical framework of classical political economy and employed it to arrive at radical conclusions, arguably implicit in that framework, but surely very far removed from the intent and spirit of the classical economists themselves.

For us, one dimension of the shift has special significance. The classical economists used their framework to argue for the separability of the economy. Modern economists influenced by their analytical framework use it as often to undermine that separation as to support it. In their work, the political dimension identified with class distribution of income enters into the work­ings of the market system itself.

As we have seen, the magnitude and distribution of the surplus bear on the determination of commodity prices. When that magnitude and distri­bution depend on a struggle between social groups, the economy is not logically separate from the political system. Thus, much is at stake in the claim that income distribution depends on class conflict and that the struggle between classes is a political rather than economic process.

Modern thinking, then, tends to reverse the direction of movement as­sociated with that of the classical economists. Where the classical economists raised the economic to a level of primacy, some modern economists have used the classical framework to erode the separateness of the economy and to elevate the political struggle to prominence in the economic arena.

It should be mentioned that this is only true of one group of modern classical economists. Others use the classical approach to value and distri­bution without treating the problem of distribution as one involving the struggle, latently or overtly political, between classes (see Robinson, 1962). The classical approach has also been melded with Keynesian insights to yield a modern theory with a classical flavor not aimed at politicizing the economy.

Many roads lead from classical political economy. The main ones we ex­plore in the following are the Marxian, neoclassical, and Keynesian. Each treats the problems of separability of the economy in a distinct way. Each deploys different notions of the economic and of the political, combining them in ways leading to different approaches to political economy.