chapter  4
9 Pages

A theory of the social origins of the factors of production

This is my personal favorite for introducing students to institutional economists’ critique of neoclassical economics. It also demonstrates the analytic power of having a cultural approach to understanding and constructing economic theories. Hamilton begins by noting that the categories of land, labor, and capital as factors of production in neoclassical production theory are historical artifacts that developed along with market capitalism in the industrial revolution. He points out that the manorial economy which preceded capitalism in Western Europe cannot be explained by the analytic concepts that emerged along with capitalism. He further notes that the categories themselves in fact represent social status groups in capitalism where individuals belong in a group based upon the source of their income. If they receive interest or profits from ownership of capital, they are capitalists; if they receive rent from ownership of land, they are landlords; and if they receive wages from work, they are laborers. Using Durkheim’s method in The Elementary Forms of the Religious Life (1947), Hamilton argues that disparate items employed in productive processes entitle their owners to a share of the income generated by the enterprise based on social relations; the only similarity these items have is their characterization as one of the factors that is entitled to an income. The actual categories of land, labor, and capital are the totemic status groups that determine rights and obligations in capitalism – all things, in all circumstances, must be placed in one such category; or a new, similar type category must be generated such as management or entrepreneurship. Hamilton simultaneously argues that in fact neoclassical production theory is incapable of actually telling us anything about actual production processes in our own modern industrial culture; much less does it have any use in understanding production in any non-industrial society. The real purpose of the factors of production is to provide a framework for justifying the distribution of income shares in capitalism.