Abstract
Do markets generate a “just” wage? The answer to this question will depend upon the particular theory of the market that the political economist employs. When comparing actual labor markets with the neoclassical theory of competitive equilibrium as its normative benchmark, Joseph Heath (2018) argues that factor pricing is orthogonal to normative issues such as distributive justice. We argue that Heath’s conclusion, though not invalid, follows from a similar normative benchmark of equilibrium, one that evaluates factor pricing without taking into account the institutional conditions within which factor prices emerge. Though indeed classical political economists and early neoclassical economists failed to deliver an explicit theory of distributive justice, what Heath overlooks is that implicit to their understanding of the market process was an institutional theory of distributive justice.
Highlights
What are the normative implications of positive economic science regarding the justice of factor pricing in labor markets? About this question, Joseph Heath (2018) asks: are markets able to deliver a just wage? For philosophers, economists, and social theorists in general, the analysis of social phenomena is never about a choice between utilizing theory and not utilizing theory as a tool to understanding the real world
Implicit in Heath’s argument is a theory of markets defined in terms of equilibrium outcomes, not in terms of processes of adjustment towards equilibrium. Based on this implicit theoretical paradigm, we argue that Heath’s conclusion, though not invalid, takes for granted the institutional prerequisites that allow factor pricing to emerge in the first place
From their positive analysis of markets, it would not be unfair to claim that classical political economists and early neoclassical economists, including Hayek, were able to draw the normative implications of market processes under alternative institutional arrangements, with regards to distributive justice
Summary
What are the normative implications of positive economic science regarding the justice of factor pricing in labor markets? About this question, Joseph Heath (2018) asks: are markets able to deliver a just wage? For philosophers, economists, and social theorists in general, the analysis of social phenomena is never about a choice between utilizing theory and not utilizing theory as a tool to understanding the real world. Our claim is meant to draw attention to the overlooked notion that classical economists, as well as early neoclassicals generally studied markets as processes under alternative institutional arrangements, not in terms of equilibrium states, the latter implied by Heath (see Machovec 1995). From their positive analysis of markets, it would not be unfair to claim that classical political economists and early neoclassical economists, including Hayek, were able to draw the normative implications of market processes under alternative institutional arrangements, with regards to distributive justice.
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