Blair Fix - An Evolutionary Theory of Resource Distribution (Part 2)

In the perfect neoclassical world everyone gets what they produce, or deserve, as some people say, but it's a fantasy world that can never exist. Distribution is unfairly lopsided all over the place. For instance, if you have the right accent and went to a public (private) school in Britain, climbing
up the ladder is much easier. That means less work for more gain. 

Neoclassical Robinson Crusoe

When it comes to explaining resource distribution, neoclassical theory is missing something obvious. To see what’s missing, we’ll tell another joke.

A neoclassical version of Robinson Crusoe gets stranded on a desert island. How much does his standard of living decrease from before he was stranded?

None. Crusoe took his human capital with him!

Again, this punchline isn’t very funny. But it’s a true representation of human capital theory, which assumes that people carry there income-earning potential around with them. All that matters for workers’ income is their stock of human capital.

Maybe it’s just me, but human capital theory seems to be missing something big. Hmmm .. what is it? Oh, just the rest of society!

Neoclassical theory assumes, quite literally, that the rest of society is irrelevant for determining one’s income. In a competitive market, the theory says that we all get what we produce [1]. If some people produce more than others, it’s because they have more human capital, or own more physical capital. The social context, in other words, is irrelevant to one’s income. Put Robinson Crusoe in London or strand him on an island … it doesn’t matter. His skills stay the same, so his income stays the same.

Blair Fix - An Evolutionary Theory of Resource Distribution (Part 2)