Question

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Describe Wicksell's view on unanimity and justice.

Answer 1

The concept of justice differs in every culture. Early theories of justice were set out by the Ancient Greek philosophers Plato in his work The Republic, and Aristotle in his Nicomachean Ethics. John Rawls used a social contract argument to show that justice, and especially distributive justice, is a form of fairness.

James Buchanan's interpretation of Knut Wicksell’s unanimity rule, and has come to dominate the public economics literature despite competing with the interpretation offered by Richard Musgrave. Citation analysis is used to examine the frequency with which Wicksell is cited and by whom. The sociology of the economics profession and avenues for the dissemination of ideas are examined to understand the dominance of Buchanan's particular interpretation and application of the unanimity rule. Wicksell is particularly disturbed by any claims (real or perceived) that, in the case of private goods, competitive markets lead to such a social optimum. In his words, ‘‘the exchange value of and total incomes from produced commodities (but not total utility) would be maximized under free competition’’.To cast this distinction in modern terms, one can think of a competitive, private-good economy with strictly concave utility functions and quasi-linear preferences. Then, by the first fundamental theorem of welfare economics, a competitive equilibrium is efficient. But the utilitarian maximum also requires equalization of the marginal utilities of the private good, pointing towards egalitarianism. Without much elaboration, Lindahl adopts Wicksell’s view. For instance, Lindahl follows Wicksell in explicitly stating that a state which maximizes ‘‘the overall satisfaction of wants of all individuals, as valued by them in money terms’’ may fail to maximize social welfare in the utilitarian sense. In Lindahl’s words: ‘‘If in the other hand, satisfaction is measured by some psychological units of value, then this rule remains valid only on the assumption that the existing property order may be regarded as the most adequate from a utilitarian point of view.

Wicksell's near-unanimity formulation of the principle was premised on just income distribution. The unanimity-rule aspect of Wicksell's approach in linking taxes and expenditures is cited as a point of departure for the study of constitutional economics in the work of James Buchanan.

Thus, considered in themselves, in their own nature, in their normal state, and apart from all abuses, public services are, like private services, purely and simply acts of exchange. The benefit principle takes a market-oriented approach to taxation. The objective is to accurately determine the optimal amount of revenue that should be spent on public goods.

The contribution of Wicksell to the development of economic theory is many-sided. He contributed to the development of the theory of marginal productivity, he made a crucial contribution to the theory of public finance, and he contributed to the monetary theory by the further development of the quantity theory of money and with his theory of interest and money. His theory of the business cycle attracted interest. The attention he devoted to aggregate variables opened the way to the further development of the macro-economic analysis. In his formulation of the theory of marginal productivity, Wicksell emphasized that if we analysed the results of production as a function of the production factors used, then every factor would need to be used to such an extent, that a small reduction in the quantity of the production factor used should lead to a decline of output to the same degree as the output brought by the last unit of any production factor used in the production. Thus, Wick- sell’s theory determines the functional distribution of output among individual production factors on the basis of marginal productivity. Wicksell started from the assumption of the use of two primary production factors, labour and land, and capital was built into his production function indirectly. In this model, the wage of a worker is determined by his marginal productivity, rent is regarded as the residual of the product. Changes in technology lead to changes in the quantity of labour and capital used. With the progress of accumulation, the marginal productivity of capital has a tendency to decline, in spite of the fact that the share of capital in the creation of the total product may increase in absolute terms. Assuming the full employment Wicksell thought that the accumulation of capital can occur only if savings grow faster than the labour force. However, competition for resources creates pressure on the growth of prices of production factors, and so the growth of real wages absorbs part of savings. This thesis is known in economics as Wicksell’s effect. Wicksell assumed that if perfect information flow existed in the market, a businessman would foresee this effect and adapt to it. However, if the assumption of perfect information is not fulfilled, Wicksell’s effect may appear. The theory of marginal productivity led Wicksell to the theory of capital, in which he devoted primary attention to the problem of the accumulation of capital and its influence on distribution. In his theory of capital, the time element comes into the forefront. According to Wicksell, the marginal productivity of accumulated stock of labour and land is higher than the marginal productivity of labor and land.