The standard argument for CEOs' high pay, especially in banking, is that it reflects the scarcity of managerial talent. Robert Peston says: 'the knowledge and talents required of someone running a bank as huge and complicated as RBS are not possessed by many.' And Dan Davies tweeted that there are less than a dozen people worldwide who know to sell off toxic assets.

The simple laws of supply and demand thus require that bosses be highly paid, don't they?

Not necessarily.

Let's concede that the premise is right - that there are very few people able to run such complex organizations. This just raises the question: who made banks so complex in the first place?

The answer is: bosses themselves (collectively). Bosses who argue that the complexity of banks means that management talent is scarce and must be highly rewarded are like the boy who murders his parents and asks for leniency on the grounds that he's an orphan. They are confusing cause and effect.

Bank bosses have played a trick which countless ordinary workers do. The IT support guy who introduces lots of 'security features' to his firm's IT systems, or the secretary who has an incomprehensible filing system, make themselves indispensable by inconveniencing others.

In the old days of banking's 3-5-4 model (borrow at 3%, lend at 5%, be on the golf course at 4 o'clock) bank bosses were well paid but not astronomically so. It's management's own introduction of complexity that has enabled their pay to soar. And whether this complexity is a social good or not is, to say the least, debateable.

Supply and demand are not natural, exogenous phenomena. They are social and ideological constructs. And bosses have constructed them to their own advantage.

Think of this another way. A Soviet communist official once asked Paul Seabright who was in charge of the bread supply to London, and was astonished at the answer 'nobody' (or everybody). But imagine if there were such an official in charge. His job would be very complicated, and hugely pressured. Only a handful of people would have the knowledge and the talents to do it.

Does it follow that it would then be right to pay such an official a massive salary?

No, because there's an alternative way of arranging the bread supply.

And a similar thing might be true for management jobs. The assertion that bosses must be paid a fortune because their jobs are so difficult begs the question in the true sense of the phrase; it assumes that the jobs have to be so complex when this premise should be questioned.

Now, you might object here that I am conflating two things: bosses' pay generally, and that of individual bosses. Individual bosses must manage companies as they actually exist, not as they might exist.

True. If I were Chancellor, I would tell Hester that his job is to simplify RBS in such a way that it could be managed by people of moderate ability who wouldn't need huge salaries. The problem is that bosses face insufficient pressures to do this.