Clark was born and raised in Providence, R. I. and graduated from Amherst College in Massachusetts at the age of 25. From 1872 to 1875 he attended the University of Zurich and the University of Heidelberg where he studied under Karl Knies (a leader of the German Historical School). Early in his career Clark's writings reflected his German Socialist background and showed him as a critic of capitalism. During his time as a professor Columbia University however, his views gradually shifted to support of capitalism. Later he became known as a leading supporter for the capitalist system.

In The Philosophy of Wealth (1886), Clark presented an original version of marginal utility theory, a decade and a half after the simultaneous discovery of this principle by Jevons, Menger, and Walras. Clark is better known for his use of marginal productivity to help explain the distribution of income (Distribution of Wealth (1899)). In his 1848 Principles of Political Economy, John Stuart Mill had asserted that production and distribution were two distinct spheres. While production was determined by physical principles, such as the Law of Diminishing Returns, distribution was the result of social and political choice. Once things were produced they could be divided up however people saw fit. Clark showed that with homogeneous labor, perfectly competitive firms, and diminishing marginal products of any input working with another fixed input (e.g., labor working with a fixed amount of capital), firms would hire labor up to the point where the real wage was equal to the marginal product of labor; thus production and distribution are intimately connected. This idea is enshrined in virtually all modern microeconomics texts as the explanation for the demand for labor.

The John Bates Clark Medal, one of the most prestigious awards in the field of economics, is named after him.