Social Justice without Socialism

By Erik W. Matson

The Columbia University professor John Bates Clark (1847–1938) was one of the most prominent American economists of his time. Hailing from a long line of Protestant ministers, Clark always viewed the science of political economy as a tool of social improvement and, indeed, a handmaiden of religious ethics. He would not have disagreed with the formulation of his younger contemporary Richard T. Ely, in his 1889 volume Social Aspects of Christianity, that political economy “is the science which prescribes rules and regulations for such a production, distribution, and consumption of wealth as to render citizens good and happy.”

Ely and Clark had much in common in the early phases of their careers. Both men studied in Germany under the supervision of Karl Knies, a leading intellect of the German Historical School. In an 1884 address called “The Past and Present of Political Economy,” Ely described the intellectual movement in which he, Clark, and many other late 19th-century American economists participated: “[We] quickly abandoned the dry bones of orthodox English political economy [e.g., Smith, Malthus, Ricardo, Whately, Mill] for the live method of the German school.” Clark joined with Ely to bring aspects of the “live method” of the German school home to the United States—especially its applications to social and economic policy. The genesis of the American Economic Association (AEA) in 1885 was partly the result of their efforts. They, along with many others, viewed the AEA as a potential American counterpart to the German Verein für Socialpolitik (Association for Social Policy) in which their teachers, including Knies, took part.

Although neither man espoused socialism, both expressed dissatisfaction with the status quo and inclined towards progressivism. The classical economists, Clark concluded in a New Englander article called “Christianity and Modern Economics,” had mistakenly spent their energies “warning philanthropic agencies, public and private, to keep wholly out of the industrial field,” on the unwarranted assumption that “unrestricted competition” works for “the highest attainable good of all.” The progressive political economy he envisioned, in contrast, would stand “in a special relation to Christian ethics.” It would partake of the humanistic effort to subject the “general process of distributing wealth to the control of the moral forces in society”; it would cooperate with “the church, the benevolent society, the school, and… the state” to specify the scientific parameters of beneficial interventions. Clark’s early views along such lines culminated in 1885 in the publication of a collection of his articles in a volume called The Philosophy of Wealth.

Between 1885 and 1899, however, Clark’s perspective changed. Whereas the young Clark perceived deep tensions between labor and capital, the mature Clark perceived natural harmony. In the words of his biographer John F. Henry, Clark grew to appreciate an “underlying harmony to existing relations,” and believe that “observed strife [between capital and labor]” can “only be the result of misguided policies, ignorance, fraud, [and] self-serving demagogues who try to violate the natural law.” Clark came to see the natural laws of the economic order as manifest in the productive consequences of competition within the legal boundaries of property and contract. As he admitted in 1903, “Competition has never worked in a perfectly free and unhindered way; but so far as it has worked, it has tended towards wealth, progress and a rude approach to honesty in the sharing of the fruits of progress.”

He did not pause to relate his shifting views to his Christian theological conceptions. He came to sympathize with a common classical conviction articulated by Edmund Burke in his 1795 Thoughts and Details on Scarcity: “[T]he laws of commerce… are the laws of nature, and subsequently the laws of God.” As Thomas Leonard remarks in his article “John Bates Clark as a Pioneering Neoclassical Economist,” Clark came to see “the hand of divinity as did the Scottish classical tradition: providential design manifesting itself in the relatively harmonious way in which competition works to promote the social good.” To work against the grain of the natural law of competition, to promote the good of one group—either subsets of workers or subsets of capital owners—is to work against the grain of providential design and hence human welfare. The drift of Clark’s later convictions is apparent in his writings against monopolistic labor unions, which he once decried as “quasi-robbery of one part of the working class by another,” and in his advocacy against minimum wage regulations, which he believed—in sharp contrast with his progressive contemporaries—to be counterproductive and inhumane.

What accounts for the change? The answer is Clark’s gradual development and application of the marginal principle to the theory of income distribution. In 1871, William Stanley Jevons, Léon Walras, and Carl Menger had independently theorized that market prices are determined by the marginal costs and benefits of sellers and buyers. A seller’s willingness to bring a good to market depends on the additional or marginal cost he bears in doing so; a buyer’s willingness to pay for a good depends on the additional or marginal benefits he would gain upon receiving it. Competitive market processes, they explained, bring marginal costs, marginal benefits, and market prices into balance. Clark took the marginal principle and explored its application to labor and capital markets.

If competition ensures that market prices approach the marginal benefits a buyer receives from purchasing a good, then competition must also ensure that income earned by a worker supplying his labor approaches the marginal benefits of his work to his employers. An employer will be willing to pay a worker so long as the marginal cost of doing so does not exceed the worker’s marginal product. If the firm pays the worker less than his marginal product, a competing firm will bid for the workers’ services by offering a higher wage. The same logic applies to the rental costs of capital: they too approach the marginal revenue products of capital goods. From these observations Clark assembled a formidable theory of income distribution. The theory took its initial shape in a series of articles in the 1880s and 1890s. It found its fullest expression in his 1899 book, The Distribution of Wealth. “It is the purpose of this book,” he announced in its opening pages, “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 production the amount of wealth which that agent creates.”

Clark believed that his theory of income distribution had serious ethical and theological implications, many of which he elaborated in a remarkable 1914 volume entitled Social Justice without Socialism. Clark believed that he had discovered a deep pattern of regularity embedded within the apparent chaos of industrial competition. If there are “‘inspiration points’ on the mountain tops of science,” the theory of income distribution “is one of them.” It enables us to see “that in a highly imperfect society the fundamental [economic] law makes for justice.” Contrary to the musings of Marxists, capitalism is not built upon the exploitation of labor by capital. Capitalists do not gain by paying workers a subsistence wage and extracting the surplus as profit. Rather, capitalism, so long as the conditions of free competition are maintained, in actuality pays each according to what he produces. For Clark, the value of what a person produces determines the compensation he or she deserves—hence, the competitive process promotes what he describes as social or distributive justice. The tendency towards distributive justice for Clark manifests the hand of providence in the competitive order. Our moral—and religious—obligation is not to strive against the natural forces of competition but to work with them and remove hindrances to their operation. We are to strive “to give every competitor a fair field and no favor.” The discovery of the law of wages implies that our moral obligation is to strive “to give to every competitor a fair field and no favor.” In doing so, we will “infuse again into the industrial system the life and vigor which only competition guarantees.” Clark did not write off all forms of governmental intervention. He favored certain antitrust regulations, restrictions of working hours, and safety regulations, among other things. But his mature presumptions shifted to non-interventionism.

Long heralded for his developments in economic theory, Clark’s ethical and theological arguments have been subject to criticism. It is naïve, critics have alleged, to move from an observation of patterns of income distribution to claims about the natural justice of the market order. Moral desert cannot be readily reduced to productivity. For all that, Clark made one thing clear: as he asserts in the concluding pages to Social Justice without Socialism, “socialism can have no monopoly of beatific vision.” The theory of income distribution he developed, and his writings on the patterns and productive tendencies of the competitive order broadly, depict a harmonious vision of the potentialities of a liberal society that we would do well to ponder.

Erik Matson is a Senior Research Fellow at the Mercatus Center and Deputy Director of the Adam Smith Program at George Mason University. He additionally serves as a lecturer in political economy in the Busch School of Business at The Catholic University of America.