JOHN BATES CLARK AND THE AMERICAN STRAND OF EARLY NEO-CLASSICISM

The American strand of neo-classicism was partly a grafting of two quite different European roots - that of German and Austrian thought (to which a substantial number of the early American academic economists were exposed during graduate study in German universities) and Marshallian influences which flowed easily across the Atlantic on the English language wave.

John Bates Clark (1847-1938) was not only a giant among American neo-classicists but he was also the first genuinely original theorist of the first rank to emerge in the New World. As a young man, he followed the course recommended for many promising students of his generation by pursuing graduate study in European universities (in Clark’s case at

Heidelberg and Zurich). On his return to America, he settled into an academic career which was climaxed in 1895 by his appointment to a chair in economics at Columbia University.

Clark's major original contribution to the sharpening of neo-classical analysis was his pioneering work on the theory of production and distribution. Two considerations influenced this concentration of his theoretical energies. One was a deep-seated moral concern which inspired him to search for criteria of distributive justice in an economic environment made increasingly complex by industrial concentrations and by the rise of labour unions.

Clark applied the tools of marginal analysis - including some of his own invention - to this task. As was characteristic of this tradition, he proceeded first on the assumption that conditions of perfect competition prevailed. The rational producer would then engage each of the three productive factors to the point at which the price of the marginal unit of each factor was equal to its marginal product. These production rules simultaneously determined the distribution of income between the various functional shares. In the absence of abnormal profits under perfectly competitive equilibrium the resulting distributional solution - as Clark was among the first to demonstrate - would exhaust the value of the total product. This conclusion holds, however, only so long as constant returns to scale prevail (i.e. the situation in which a doubling of the size of plant would produce no change in unit costs). It would be vitiated in the case of economies of scale that lowered unit costs.

Conditions in the real world, of course, were likely to depart from the perfectly competitive standard. Indeed, when employers enjoyed a bargaining advantage, they would probably exploit it by paying wages at rates less than the value of labour's marginal product. In Clark's judgement, this amounted to ‘institutional robbery' which occurred in any ‘plan of living that should force men to leave in their employers' hands anything that by right of creation is theirs'.8 But it was also possible that tightly organized trade unions might exact - if only temporarily - wage rates in excess of labour's marginal product. This situation was also socially ‘unjust'; Clark believed that it could be avoided by denying unions any powers to restrict the supply of labour (such as those that would be possible under closed shop arrangements).

Using marginal productivity techniques, Clark had, in effect, devised a neo-classical definition of 'exploitation' - but one which was totally alien to the Marxian use of the same expression. As Clark saw the matter, economic exploitation was a real possibility but not inherent in the capitalist process. Only when the system departed from the perfectly competitive standard did exploitation arise. Nor was the exploitation of labour by capitalists the only possible deviation from distributive justice, though it might be the most probable. At least in principle, labour could exploit capital if its claims resulted in sub-marginal product rewards to capital.

The programme for the analysis of the practical attainability of distributive justice required, of course, an inspection of the actual competitive order - and, in particular, of the implications of industrial concentrations - before it could be rounded out. Clark's initial position was quite unsympathetic to the moral ethos of industrial capitalism, an order he interpreted as being built on lust for private gain rather than the promotion of social virtue. But if unrestrained competition was socially abusive, monopoly was likely to be even more so. Personally, he supported the promotion of producer co-operative organizations.

He later modified these views substantially. The threat of monopoly no longer loomed so large in his thoughts as, under dynamic conditions, he maintained that technical innovation would constantly challenge established concentrations of market power. Size per se was not sufficient as a basis upon which to judge the social effects of an industrial organization. So long as there were no barriers to the entry of new competitors and so long as collusive Agreements between producers were prohibited, most of the socially desirable features of perfect competition could still be obtained in a dynamic and expanding economy. On this matter Clark's views anticipated the ‘workable competition' doctrines now current which maintain that industrial organization should be judged more by performance tests (e.g. technical progressiveness, restraint in price-setting, etc.) rather than by structural tests (e.g. size, share of the market, and the number of rival producers).

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