Why Oh Why Can't We Have Better Mainstream Economists?

The answer to the question in the post title is obvious to a certain extent. Mainstream economists are part of a larger system that is served by obfuscation. If (some) economists become too penetrating in their examination of a capitalist economy, their colleagues simply purge them from the profession. (I seem to recall reading somewhere that Fred Lee is indeed writing a book.)

Anyways, I want to know whether mainstream economists, such as Brad DeLong, understand price theory - never mind whether they understand Karl Marx (which they don't). Consider this passage:

"Marx believed that capital is not a complement to but a substitute for labor. Thus technological progress and capital accumulation that raise average labor productivity also lower the working-class wage. Hence the market system simply could not deliver a good or half-good society but only a combination of obscene luxury and mass poverty. This is an empirical question. Marx's belief seems to me to be simply wrong." -- Brad DeLong

I see here an incorrect belief that income can be determined by technical relationships. Given DeLong's reference to complements and substitutes, he is, I think, drawing on his (mis)understanding of marginalism. He probably believes something like the following: in a market economy, agents receive (or should receive) the value of the marginal products of the services of the factors or production that they own. (By mentioning ownership, I am already being more careful than many might be; capitalists do not have a marginal product, even if the services of capital goods were to each have one.) To reinforce my point that some believe this, I quote some comment on a blog somewhere:

"And then you can have a simple theory of exploitation where it happens if somebody somewhere doesn't get their marginal product." -- Radek

I have pointed out before that marginal productivity, when correctly stated, is a theory of the choice of technique, not a theory of distribution. And, by quoting Duncan Foley, I acknowledged the unoriginality of my understanding. I now take the opportunity of my recent exposition of a reswitching example to re-iterate the non-existence of the marginal productivity theory of distribution. Figure 1 illustrates that example, and it is consistent with all correctly formulated conditions on marginal products for the example.

Figure 1: Wage-Rate Of Profits Curves

I want to consider what data about production the observing economist must know to calculate the value of marginal products. First, suppose he knows the technique in use. In each (non-vertically integrated) industry, the inputs purchased by each firm and the outputs are known. In a circulating capital model of competitive markets, this data determines wage-rate of profits surfaces, of which two are shown in the figure. But the observing economist cannot use this data to determine the equilibrium distribution; any point on the surface corresponding to the observed technique is consistent with the data.

But marginal products are defined in terms of counterfactual experiments. Accordingly, suppose an economist knows all available production processes, as well as the technique in use. One can use this data to construct the wage-rate of profits frontier, which is the outer envelope of the wage-rate of profits curves constructed for each technique. For the sake of argument, suppose an uncountably infinite number of techniques happen to exist, and these techniques vary continuously along the frontier. So the frontier contains no switch points, where more than one technique is cost minimizing. Nevertheless, if the rate of profits (or wages) varies an infinitesimal amount from the value corresponding to a location on the frontier, a different technique would be cost-minimizing in a long-run equilibrium.

Reswitching shows this data is not necessarily enough to determine distribution. In the example, the alpha technique corresponds to two discrete ranges of equilibrium wages. It may be that if wages were set to a completely different level, firms would want to employ the same number of people, purchase the same resources, and use the same processes in production. The quantity flows within the firms would be unchanged, although who would purchase what on consumption markets could be vastly different. And yet for some level of wages between these two values, firms would want to adopt other processes. Thus, one's income in a capitalist economy cannot be a reward for physical productivity. The belief that income rewards productivity in a capitalist economy is an element of vulgar political economy, contradicted by rigorous price theory.

"...one who believes technology to be ... like my 1966 reswitching example ... will have a more sanguine view about how successful militant power by organized labor can be in causing egalitarian shifts in the distribution of income away from property even in the long run." -- Paul A. Samuelson, "Steady-State and Transient Relations: A Reply on Reswitching", Quarterly Journal of Economics, V. 89, N. 1 (Feb. 1975): 46

Suppose you run into an economist who refers to the marginal product (or the value of the marginal product) of some factor of production, perhaps in explaining why, regrettably, wages for somebody cannot easily be made higher. That economist simply does not know what he is talking about.