Reply To: Income Inequality Chime-in


From what I can gather, these two states seem to make up his main thesis:

(1) “Markets may determine what cars sell for but cannot tell how much of that value each team member contributes.”

(2) “Since in the real world managers rarely have any sure idea how to use more capital and less labor, or vice versa, markets cannot determine how much workers earn.”

Here are some initial thoughts. His statement in (1) seems to presuppose some type of objective theory of value. He seems to be saying, “Wages ought to be based on the percentage employee X contributes to production.” What is the objectively right percentage? How do we objectively determine how much he contributed? He does not tell us. But apparently entrepreneurs are not good at this, so we need some type of social planning?

His statement in (2) is downright odd (or at least sounds that way to me). It implies that the reason markets do not determine wages is that managers have “no sure idea how to use more capital and less labor.” What? I honestly am confused. First, markets DO determine wages, so what does he mean by they can’t determine wages? I’m guessing he means that markets cannot determine FAIR wages. That gets right back into the objective theory of value he seems to be arguing from. Who decides what’s fair? Government? Experts? There is no better answer than the unhampered market.

Also, he possibly is assuming that prices are determined by the cost of production (though it may not be central to his argument). If so, professor Herbener explains why this view is false in the last 10 minutes of the 2nd lecture of prices of consumer goods.