Does anybody else remember that Kurt Vonnegut story "Harrison Bergeron"? (It's an early one; he reused the conceit, I think, in one of his novels -- The Sirens of Titan maybe?) The idea is that in a future egalitarian dystopia, perfect fairness is achieved by subjecting everyone to penalties corresponding to their talents -- the physically fit have to wear burdensome weights, smart people like you and me and Kurt have earphones subjecting us to distracting noises, and so on.
As a story, it's not much -- sort of a Simple English version of The Fountainhead. But I thought of it when I read this post from Nick Rowe last month. Microeconomics isn't normally my bag, but this was fun.
Suppose we have a group of similar people. One of them has to do some unpleasant or dangerous job, defending the border against the Blefuscudians, say. Has to be one person, they can't rotate. So what is the welfare-maximizing way to allocate this bad job? Have a draft where someone is picked by lot and compelled to do it, or offer enough extra pay for it that someone volunteers? You'd think that standard micro would say the market solution is best. But -- well, here's Nick:
The volunteer army is fair ex post. The one who volunteers gets the same level of utility as the other nine. ... The lottery is unfair ex post, because they all get the same consumption but one has a nastier job. That's obvious. What is not obvious, until you think about it, is that ... the lottery gives higher expected utility. That's the result of Theodore Bergstrom's minor classic "Soldiers of Fortune" paper.
The intuition is straightforward. Think about the problem from the Utilitarian perspective, of maximising the sum of the ten utilities. This requires equalising the marginal utility of consumption for all ten men. ... The volunteer army gives the soldier higher consumption, and so lower marginal utility of consumption, so does not maximise total utility. ....
If we assume, as may be reasonable, that taking the job reduces the marginal utility of consumption, that strengthens the advantages of the lottery over the volunteer army. It also means they would actually prefer a lottery where the soldier has lower consumption than those who stays home. The loser pays the winners, as well as risking his life, in the most efficient lottery.It's a clever argument. You need to pay someone extra to do a crap job. (Never mind that those sorts of compensating differentials are a lot more common in theory than in the real world, where the crappiest jobs are also usually the worst paid. We're thinking like economists here.) But each dollar of consumption contributes less to our happiness than the last one. So implementing the fair outcome leaves everyone with lower expected utility than just telling the draftee to suck it up.
Of course, this point has broader applications. I'd be shocked if some version of it hasn't been deployed as part of an anti-Rawlsian case against social insurance. Nick uses it to talk about CEO pay. That's the direction I want to go in, too.
We all know why Bill Gates and Warren Buffett and Carlos Slim Helu are so rich, right? It's because
The problem is, even if the monstrously rich really were just as monstrously productive, that wouldn't make them utility monsters. Even if you think that the distribution of income is determined by the distribution of ability, there's no reason to think that people's ability to produce and their ability to derive enjoyment from consumption coincide. Indeed, to the extent that being super productive means having less leisure, and means developing your capacity for engineering or order-giving rather than for plucking the hour and the day virtuously and well, they might well be distributed inversely. But even if Paul Allen really does get an ecstasy from taking one of his jets to his helicopter to his boat off the coast of Southern France that we plebes, with our puny so-called vacations [1], can't even imagine, the declining marginal utility of consumption is still going to catch up with him eventually. Two private jets may be better than one, but surely they're not twice as good.
And that, if you believe the marginal product story, is a problem. The most successful wealth-creators will eventually reach a point where they may be as productive as ever, but it's no longer worth their while to keep working. Look at Bill Gates. Can you blame him for retiring? He couldn't spend the money he's got in ten lifetimes, he can't even give it away. But if you believe his salary up til now has reflected his contribution to the social product, his retirement is a catastrophe for the rest of us. Atlas may not shrug, but he yawns.
Wealth blunts the effects of incentives. So we want the very productive to have lots of income, but very little wealth. They should want to work 12 hour days to earn more, but they shouldn't be tempted to cut their hours back to spend what they already earned. It seems like an insoluble problem, closely related to Suresh's superstar doctor problem, which liberalism has no good answer to. [2]
But that's where we come to Harry Bergeron. It's perfectly possible for superstar doctors to have both a very high income and very low wealth. All that's required is that they start in a very deep hole.
If we really believed that the justification for income disparities is to maintain incentives for the productive, we'd adopt a version of the Bergeron plan. We'd have tests early in life to assess people's innate abilities, and the better they scored, the bigger the bill we'd stick them with. If it's important that "he who does not work, neither shall he eat," [3] it's most important for those who have the greatest capacity to work. Keep Bill Gates hungry, and he might have spent another 20 years
There's no shortage of people to tell you that it might seem unfair that Paul Allen has two private jets in a world where kids in Kinshasa eat only every two days, but that in the long run the tough love of proper incentives will make more pie for everyone. Many of those people would go on to say that the reason Paul Allen needs to be encouraged so strenuously is because of his innate cognitive abilities. But very few of those people, I think, would feel anything but moral outrage at the idea that if people with Allen's cognitive capacities could be identified at an early age, they should be stuck with a very big bill and promised a visit from very big bailiffs if they ever missed a payment. And yet the logic is exactly the same.
Of course I'm not endorsing this idea; I don't think the rich, by and large, have any special cognitive capacities so I'm happy just to expropriate them; we don't have to work them until they drop. (People who do believe that income inequality is driven by marginal productivity don't have such an easy out.)
But it's funny, isn't it: As a society we seem to be adopting something a bit like the Bergeron Solution. People who are very productive, at least as measured by their expected salaries, do begin their lives, or at least their careers, with a very big bill. Which ensures that they'll be reliable creators of value for society, where value is measured, as always, in dollars. God forbid that someone who could be doctor or lawyer should decide to write novels or raise children or spend their days surfing. Of course one doesn't want to buy into some naive functionalism, not to say conspiracy theory. I'm not saying that the increase in student debt happened in order that people who might otherwise have been tempted into projects of self-valorization would continue to devote their lives to the valorization of capital instead. But, well, I'm not not saying that.
[1] What, you think that "family" you're always going on about could provide a hundredth the utility Paul Allen gets from his yacht?
[2] That post from Suresh is where I learned about utility monsters.
[3] I couldn't be bothered to google it, but wasn't it Newt's line back in the day, before Michele Bachman picked it up?
Yep. Good post.
ReplyDeleteI vaguely remember reading that Kurt Vonnegut novel too, ages ago. There was a ballet, where the dancers all had to lug around big weights. (Unless that was in "Sirens of Titan")
BTW, I thought "chuffed" meant "proud"? Maybe slang has changed. I does that.
@ Josh:
ReplyDeleteI don’t know if I buy the notion of satiable personal utility.
1) Material satiety is all relative. Starving kids in Kinshasa could look at Josh Mason and say, “How much does this guy need, anyway? He has enough money to keep himself in corn meal and powdered milk for a lifetime. Why doen’t he just retire and send us his fortune?” And yes, Paul Allen may grow bored with his second jet—but he hungers for his own space shuttle.
2) You’re restricting the concepts of incentives and utility solely to personal consumption.
The super-rich probably would agree that their bodily desires are sated and their wealth an abstraction that can’t be personally consumed. But that just means that they move up Maslow’s hierarchy of needs and start pursuing more exalted, trans-personal forms of self-actualization. Wealth doesn’t blunt the effects of incentives, it just switches your utility schedule to a different set of incentives. Bill Gates would tell you that he hasn’t retired at all: he now works very hard through his charities on solving problems of poverty and disease and sustainable energy, and produces lots of social value along with the personal utility he gets from satisfying his and Melinda’s egotism.
Plutocrats aren’t the only ones who do that. Lenin, for example, jumped over the personal consumption rung on the Maslowian ladder and went straight for the transcendent meaning rung by making a socialist revolution.
So it seems that man has an intrinsic need to eradicate malaria, conquer Europe and overthrow the bourgeoisie. Those ego-gratifying accomplishments are so scarce that one is unlikely to feel a declining marginal utility from a surfeit of them. And unlike buying a hi-def TV, satisfying such needs requires an immense capital base—either the resources of a despotic state or a private fortune. Thus Gates’s billions do have a rationale that’s both personal (you can’t sate your grandiose narcissism on a shoestring) and social (Gates and other plutocrats personally consume only a small fraction of their riches and plow the rest into business or charitable endeavors with at least a notional utility to the public at large.)
The fact that the *marginal* utility of wealth to the wealthy is, oddly, the central point of this recent editorial by Andy Kessler:
ReplyDeletehttp://online.wsj.com/article/SB10001424052970204632204577128230588463516.html?mod=ITP_opinion_0
Of course, this being the WSJ, his point (I think) is that the less wealthy should stop griping. The obvious follow-on "Nice try, but you just pointed out why somewhat more progressive taxation is no particular handicap" seems to have eluded him.
There are two things that are talked about in theory vs. in reality here that I don't believe are quite understood
ReplyDelete1)In theory, you pay someone more the crappier the job is. In reality, you pay someone more based on the abilities required for the job. Not but a couple people can do what Bill Gates, Steve Jobs, Warren Buffett, etc. did, and still do. Therefore, they get paid more. Not to mention that Warren Buffet doesn't get paid more on a salary basis. He only gets a salary of 100,000, which he has had since anyone can remember (might have been exorbitant back in the day, but not so much anymore). His money comes from investments, this is an ability he gained from hard work. And with all the access to investing there is, everyone can do what he does if they start early and educate themselves well enough. He started when he was a child, not when he got out of college. It was his parents that instilled in him the work ethic that now propels his wealth and productivity. The opportunities are always there, but sometimes people aren't raised with the right attributes to understand how to get to where he is. Warren Buffett could care less about the money he makes, but he knows that hard work is what got him it. And he wasn't born with it, he was raised by it. Education, being raised properly, and hard work is what gets most people to that 1% title. Anyone can work hard, and everyone can educate themselves nowadays (thanks to the internet). The only thing that everyone doesn't have full control over is being raised well. Fix that, and lots of problems would be solved. That's a pipe dream though.
2) There are two reasons someone works hard at what they do. The first is to better their economic situation. The second is because they enjoy what they do. Most of the time every person starts out concerned more with bettering their economic situation, and if they chose their field wisely then they might love what they do too. Unfortunately, some people don't even get a good chance to do either. That doesn't mean that opportunities don't exist for those people though. Never the less, people like Bill Gates, Warren Buffett, etc. thoroughly enjoy what they do. When they started out, I'm sure they were more concerned with doing what they love as a means to better their economic situation. Now that is not an issue, so they just do what they do because they love it. Bill Gates is retired, not because he couldn't find ways to spend the money he already had, but more likely because the money he has allows him to pursue other things he's interested in (charity). I mean after 20+ years of something, I'm sure lots of people would WANT to move on. The reason that most don't has more to do with that they don't have the resources. So if the reason he retired was because he was too rich, then by theory Warren Buffett would have retired years ago. Yet in reality, he's 80 and still going strong for at least a couple more years.
(continued from above)
ReplyDeleteThe richest people in the world aren't necessarily that because they are the most productive and they provide utility for everyone else, but rather because they had the drive and the intelligence to follow what they were interested in to a point where they could be productive. You can be a plumber and still become rich in terms of wealth. You simply have to know how to invest and save to better your economic situation if what you love to do doesn't pay all that well. So in effect, Gates and Buffett became richer than all hell because of these attributes. Rappers could be just as rich as some of these people too, but they choose to spend their money on $1.2 million dollar cars. Warren Buffett probably doesn't have $1.2 million dollars of belonging in his possession. His bank account is where it's at. It was not because these kinds of people are inherently so productive that they deserved that kind of money. They got that kind of money because they were good at what they did, and they were prudent with their money.
The money is a byproduct, not the driver of their productivity. Name me one person who is one of the richest people in the world that hates his job? I bet there aren't many, because they would quit and move onto something else. It may not be that way for those who are still rich, but not that rich though. Money still may be their motivator for productivity. I can't imagine everyone really enjoys being at a trading desk on Wall Street their entire life. It's a stressful job that more than likely comes standard with around 60 hour work weeks. Anyone else who wants to complain about their pay must understand that, and that they work in New York so that their salary and bonuses get cut by more than half before they get their hands on anything. Many only do this because of the money. Same with investment bankers. Then after they put in their time, they become CEO's and start to feel like after all that work they deserve to be compensated extremely well if they can do a good enough job. It's nothing short of human nature to believe that. Not one person can tell me that after working 15 to 20 years at 60 hours a week that they wouldn't tell themselves that they deserve to cut that down to 50 and get more money. Do they truly deserve it? who knows, but that's why it is that way. Not to mention places like to offer salaries higher than the competition if they are trying to attract top talent to a head position. That's why bank CEO pay is higher than say a manufacturing companies. There are tons of banks, all competing with a small competitive moat. Manufacturing you have different sectors, different varying degrees of competitive moats, etc. If you can run one manufacturing company well, there's no guarantee that you'll run another company's that well. With banks on Wall Street, that's not necessarily the case because they all do almost the exact same thing.
I'm not sympathizing with Wall Street pay, or any other rich person. I'm just pointing out that not one person in the world would do it differently if they were in those people's shoes. You either do it like Gates and Buffett or you do it like the Wall Street types do. That's the only difference, but the similarity is that they all work harder at jobs that require more talent than most. A job cleaning up trash may suck, but it's not hard. Therefore, they shouldn't get paid more. There's no shortage of opportunity in this country though. You don't like it, change your life up and go after something that satisfies you more.
Nick,
ReplyDeleteThanks! It's really just a variation of your post, but the remix is supposed to be what the culture is all about now, right?
Re chuffed, it's not my native slang. I'd thought I'd heard British people use it to mean "can't be bothered" but the internet isn't backing me up here, so I got rid of it.
Will-
Personally, I don't think utility is a useful way to think about how people make decisions, and I don't think welfare is a useful way to normatively evaluate social outcomes. So I don't really disagree with you substantively. The point of the post, beyond just being a kind of shaggy dog joke for economists, is to say that if you do accept the conventional utility/welfare framework, the same arguments that are used to justify income inequality should also support what I'm calling the Bergerson Solution. The fact that nobody actually does support it, suggests that the defense of income inequality isn't really based on a concern with efficiency.
Paul Allen may grow bored with his second jet—but he hungers for his own space shuttle.
Sure, no doubt. That's the exact point of the DeLong post the Allen bit links to. But nothing in the argument requires absolute satiety. All that matters is that the dollar put toward a space shuttle adds less to Allen's happiness than a dollar spent on his first jet. (Otherwise Allen, being a rational guy, would have saved up for the shuttle first.)
Bill Gates would tell you that he hasn’t retired at all: he now works very hard through his charities on solving problems of poverty and disease and sustainable energy, and produces lots of social value along with the personal utility he gets
Sure, again, no argument. But what you have to realize is that this destroys the argument for letting him get so rich in the first place. If people's willingness to devote their talents & energies to something socially useful doesn't depend on the claims on the social product that they get as a result, then there's no reason not to just distribute those claims on the basis of need, and count on intrinsic motivation to keep people engaged in productive activity. Socialism, in other words.
@Josh:
ReplyDelete“Personally, I don't think utility is a useful way to think about how people make decisions, and I don't think welfare is a useful way to normatively evaluate social outcomes.”
Actually, I was arguing that utility and welfare are at least plausible ways to think about the activities of the super-rich as long as you broaden the concept of utility beyond material consumption.
You’re larger point is right: the utilitarian argument for income inequality is vulnerable to your reductio ad absurdum, just as any utilitarian ethics founders on rights-based moral conundrums if applied rigorously. (Why not kill a healthy little girl and distribute her body parts to several other little girls dying of organ failure?)
“the dollar put toward a space shuttle adds less to Allen's happiness than a dollar spent on his first jet. (Otherwise Allen, being a rational guy, would have saved up for the shuttle first.)”
Hmmm. This implies a permanent, stable, well-ordered utility schedule based on perfect knowledge of the satisfaction to be derived from goods and experiences. That’s not too realistic. In real life, utility schedules shift over time, partly for exogenous reasons—little boys think females are boring, grown men find them fascinating—and partly because we discover that our heart’s desires turn to ashes. It doesn’t follow that what we want first is what satisfies us best.
So your premise that incentives pall after you get rich isn’t necessarily true; incentives may just shift to different goals unrelated to material consumption, which could be just as motivating as prior consumption goals in terms of the effort they elicit. You don’t have to keep the rich in debt peonage to get them to work hard, because after their material wants are sated they will keep working to pursue other non-consumption incentives. The utility schedule shifts to grandiose goals that derive ego-gratification from a notional altruism or an abnormal drive for power and control. (And which can motivate rich people, presidential candidates for example, to great effort and sacrifice.)
And there’s another factor possibly keeping them on the treadmill: insecurity. The rich can never be sure that they won’t lose all or part of their fortune, so they can never stop working to make it bigger.
Does the fact that people will often work for non-consumption goals imply that we can do away with material incentives altogether? I don’t think that follows. I think people at the lower reaches of the income spectrum—the 95%, say--are strongly, though by no means entirely, motivated by material incentives. (I know I am; I’ve done some pretty unpleasant things to get money to buy stuff.) And even the genuinely philanthropic rich still want money, because they need huge fortunes to buy their typically very expensive non-consumption goods. (Named university chairs don’t come cheap.) Again, we shouldn’t conflate personal utility with material consumption; you can spend a lot of money on the first without pursuing the second.
A utilitarian and materialist model is not a complete account of human motives and ethics, nor should it always dictate policy. (I don’t think heavy taxes on the rich distort utility schedules enough to damage the economy.) But I don’t think you can entirely sever policy from those concepts without tossing out the reality principle. You can’t run the economy on surfing and novel-writing. How will you get people to do less pleasant and less ego-boosting tasks if not through material incentives? Will people unclog sewers and bag groceries solely because of an inner calling or a sense of altruism?
@Josh:
ReplyDelete"Personally, I don't think utility is a useful way to think about how people make decisions, and I don't think welfare is a useful way to normatively evaluate social outcomes."
Are you sure about that? What exactly is your rationale for expropriating the rich besides the utilitarian one of social welfare outcomes?
One problem with blogging is that if you write an interesting post, it will attract interesting comments, each of which really deserves a post-length response. I still owe John Halasz a proper engagement with his comments on the last one. Well, there are worse problems to have.
ReplyDeleteAgain, this thing really had two points. One was to suggest that the conventional defense of wealth inequality in terms of providing proper incentives for the talented isn't the real reason people defend inequality. The other was to come from an unexpected direction to a somewhat familiar critique of student debt. On the first point, the idea is just that insofar as incentives require that people whose participation in the production process has a higher than average marginal product see a larger than average increase in their income as a result of that participation, logically that's just as compatible with their income being lower than average if they don't participate, as it is with their income being higher than average if they do participate. Standard welfare economics even suggests the second option is preferable. So the fact that we only see the first option in practice suggests that what's being supported is inequality as such, rather than inequality as a necessary evil to achieve the higher output that's in the interest of everyone. It's not really a reductio ad absurdum, I don't think.
The logic of the argument isn't that we should throw out material incentives completely (altho sometime I hope we will); it's that material incentives would work better if high incomes could be separated from high wealth. Which is where student debt comes in, and which doesn't require that the rich are indifferent to additional earnings, only that an additional dollar is worth at least a bit less when you already have lots of them. You could, if you like, argue that the marginal utility of income is not declining but flat or even increasing, because the most rewarding forms of expenditure are so lumpy that you can't buy them at all until you reach a certain threshold. I'm not debating that point because it's not the conventional story, and my goal here is to show how the conventional story doesn't do the work that it's usually assumed to.
@Josh:
ReplyDeleteOkay, I’ll concede that your rigorously utilitarian argument shows that wealth inequality is worse than debt peonage for output as a whole, under certain assumptions. But where does that get you?
“So the fact that we only see the first option in practice suggests that what's being supported is inequality as such, rather than inequality as a necessary evil to achieve the higher output that's in the interest of everyone.”
I’m not sure that conclusion follows, or that it’s rhetorically powerful.
Maybe we should distinguish between “hard” and “soft” utilitarianisms. Hard utilitarianism takes utilitarian principles rigorously to their logical conclusions. Soft utilitarianism makes claims for the generally beneficial character of arrangements while shying away from logical conclusions in deference to individual rights.
Hard utilitarianism can always be confounded by twisting it into a scenario that grossly violates individual rights, as your post does. But rigorously logical refutations of hard utilitarianism don’t really vitiate the force or unmask the insincerity of soft utilitarianism. Indeed, everyone, including leftists and you, embraces soft utilitarianism whenever it cuts their way.
So imagine you had to debate a conservative economist over the utilitarian benefits of wealth inequality. If your opponent is a bad debater, your debt peonage modest proposal would confound him and he would gouge his eyes out. But if he is a competent debater, he will deftly sidestep it: “Maybe you’re right that forcing exceptionally productive people into debt peonage maximizes output, provided we can reliably identify such people beforehand, which we can’t, and provided they won’t find ways to evade debt peonage, which they will. But that system would violate our basic convictions about fairness and individual rights. Tolerating wealth inequality still gives us a utilitarian payoff while respecting individual freedom. Plus, it gives people who aren’t exceptionally talented an incentive to develop their capabilities, channel them towards productive ends and work hard, which is good for everybody.” The audience will nod sagely, and you lose the debate.
You can harp on the logical inconsistencies in soft utilitarianism, and maybe that carries weight in theoretical disputes among economists. But inconsistencies don’t imply insincerity. The utilitarian rationale for inequality isn’t a smokescreen, but it does coexist with logically contradictory convictions about individual rights. All practical ethics are that way—a muddled truce between clashing principles.
But I do kind of agree with you that there’s a deeper ideological allegiance to inequality mixed in.
I think the bedrock conservative worldview is the belief in natural hierarchies: some people are smart, virtuous and productive while others are not, and those distinctions are at least in part intrinsic rather than situational. (Aristocrats think the natural hierarchy is one of blood, the bourgeoisie one of merit.) A well-ordered society correlates wealth and power with the natural hierarchy.
So to a conservative, an egalitarian society by definition subverts natural order and justice because it neither rewards superior people with the wealth they earned and the power they need to properly organize society nor subordinates inferior people to their betters. The core conservative passion is rage at legal protocols that allow natural inferiors—lazy union workers, minority civil servants, tenured teachers, welfare moms—to claim wealth and exercise authority over the savvy investors and innovative businessmen who are their natural superiors.
I suppose I'm that rare depressive fellow, who doubts his own sense of humor, and takes too literally what are for others, flights of fancy. I apologize in advance; my quibbles and demurrals must seem the products of a dull, plodding mind, because they are.
ReplyDeleteThe marginal product theory of the distribution of income among the factors of production doesn't actually depend on marginal utility, even if the reasoning seems a mirror. At base, it is a kind of "big shovel" theory. The ditchdigger is paid in proportion to his marginal productivity in digging ditches, and that is determined by the size and power of his shovel.
Paul Allen, as far as I know, doesn't even have a job, in the conventional sense. He has a huge income, because he owns a hell of a lot of shovels, so to speak, and the shovels, as factors of production, earn an income for him. They may not even be particularly productive shovels. The marginal productivity of his labor may be de minimus, for all we know, since he isn't the ditchdigger.
Bill Gates did sit on top of a great engine of production, Microsoft -- a very big shovel, indeed -- and he took home in the neighborhood of one or two million dollars a year, in most years, from his labor, if I remember correctly. That's a huge sum, of course, but not even within two orders of magnitude of the wealth he acquired, through entrepreneurial arbitrage, in creating Microsoft. Buying low and selling high is not marginal product from a production function.
As Anonymous notes above, Buffett has historically taken a $100,000 salary from his vehicle, Berkshire Hathaway. The marginal product of his labor is -- on the market argument -- $100,000 per annum. End of story.
Now, Buffet has an enormous income and enormous wealth, but none of that is, properly, attributable to his marginal product. He owns a lot of shovels, so to speak, and has realized increases in the value of those shovels. But, he, personally, does not dig any ditches. His effort is not implicated in the digging of any ditches. So, what can his "incentives" to "effort" matter?
Of course, I understand that many people want society and the economy to be a morality play, in which justice is done and the elect prove their salvation, through grace and marginal product, etc. In another context, I would argue that institutions must have an endogenous morality to function. I have my own objections to the production function as a theory of production; and, like you, I don't think utilititarianism and the law of diminishing returns work well together to frame an analysis of human motivation.
My humorless demurral is narrow: I don't like the way you skated over the role of wealth/capital in determining income. It becomes a pea in a shellgame, which you make appear and disappear to suit. Capital, as a factor of production has a marginal product, and claims income. You should not attribute the marginal product and income of Capital to Labor, even in the person of the Capitalist. That's a basic confusion. A Warren Buffett or a Paul Allen cannot earn a large income from their ownership of Capital, while in debt peonage, whether we suppose that they has some supernatural capacity to do so, or not.
Imagining that a Capitalist must be a Utility Monster, even to care enough to make the effort to see that his Capital (and Land) is (are) productively employed becomes just a distraction in this shellgame, I'm afraid. If the capitalist is not the ditchdigger, his labor has no relevant marginal product, and the marginal product of his capital is not relevant to his income, either, since it is the quantity of his capital and its inframarginal returns that matter.
As an aside, one might observe that the Human Capital argument was a seductive innovation, since it reinforces the economics-as-morality-play, which conservatives want, to legitimate hierarchy.
OK, curmudgeon time is over.