Economic Inequality in the United States

By Lars Osberg | Go to book overview

8

THE "NEOCLASSICAL" PERSPECTIVE:
THE IMPLICATIONS OF CHOICE

When any expensive machine is erected, the extraordinary work to be
performed by it before it is worn out, it must be expected, will replace
the capital laid out upon it, with at least the ordinary profits. A man
educated at the expense of much labour and time to any of those
employments which require extraordinary dexterity and skill, may be
compared to one of those expensive machines. The work which he
learns to perform, it must be expected, over and above the usual wages
of common labour, will replace to him the whole expense of his
education, with at least the ordinary profit of an equally valuable capital.
It must do this too in a reasonable time, regard being had to the very
uncertain duration of human life, in the same manner as the more
certain duration of the machine.

The difference between the wages of skilled labour and those of
common labour is founded upon this principle.

ADAM SMITH
The Wealth of Nations (1776)


8.1 Introduction

These words of Adam Smith have been much repeated in the more than two centuries since they were penned. Today, this small paragraph has expanded into a vast and growing "human capital" literature which represents the largest and most influential economic approach to the differences of individual earnings. In this chapter we outline the "neoclassical" approach to the study of economic inequality. The theory comes in two parts—that which concerns the determination of individual earnings (section 8.2) and that which concerns the determination of the distribution of earnings (section 8.3). As we shall see, the link between these parts can be questioned. The implications of this debate extend beyond economics, in that such sociological approaches as status attainment

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Economic Inequality in the United States
Table of contents

Table of contents

  • Economic Inequality in the United States *
  • Contents *
  • Preface ix
  • Economic Inequality in the United States *
  • 1 - Introduction 3
  • 2 - Inequality in Money Income 9
  • 3 - Economic Inequality 32
  • 4 - Poverty and Inequality 61
  • 5 - Of Laborers and Capitalists— the Issue of Factor Shares 85
  • 6 - Of Chance and Ability 100
  • 7 - Of Race and Sex 115
  • 8 - The "Neoclassical" Perspective: the Implications of Choice 130
  • 9 - Structural Interpretations: the Importance of Constraints 162
  • 10 - An Eclectic Summary 184
  • 11 - The Acquisition of Property 195
  • 12 - Growth And/Or Equality? 220
  • 13 - Government and Inequality 234
  • 14 - Conclusion 256
  • Bibliography 267
  • Index of Names 291
  • Index of Subjects 296
  • About the Author 307
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