Income distribution

“ But it is quite possible that aggregates and averages may remain unchanged while a radical readjustment of incomes and costs is effected among individuals or among the differently circumstanced groups which compose the social organism. Indeed, it is quite plain that a readjustment of respective shares in the distribution of the total income among the different classes of the population is the raison d'être of present economic discontent, and a careful analysis of the apportionment of the "national dividend" affords a key to the current problems of living costs. ”

“ It has to apportion labor among different occupations for the sake of collective production, which is a grand synthetic operation whereby each man puts something into a common total which is the income of all society. It has, further, to divide the grand total into shares for its different members—an analytical operation in which each man takes something out of the aggregate for his personal use. This is distribution in the narrower sense of that term—the apportionment among the members of a civilized society of the fruits of production. ”

“ Functional distribution controls personal incomes since each man who gets, in a normal way, any income at all performs one or more productive functions, and his total income is the sum of the returns for these several functions. Moreover under such a condition of ideally perfect competition as we have assumed each of these functions is rewarded according to the product that it creates; and each man accordingly is paid an amount that equals the total product which he personally creates. ”

“ When new railways, machines, etc., before they are complete, simultaneously increase the rate of interest and the rate of wages, and even sometimes rent, although they do not immediately increase the national income in any way, the phenomena are to be explained, not by a distribution of income, but as the result of an advance of capital made. ”

“ Figure 9 gives gives the same result but then as a net income plot. The horizontal axis gives income, the vertical axis net income. The tax is given by the difference between net income and the 45-degrees line. Subsistence now is a horizontal line at B. The intersection of the B-line and the net income line gives the minimum wage M. You must earn at least M to satisfy the minimum net income requirement B.
Figure 9: Net income plot
The Tax Void Let us now combine the earnings distribution and the tax plot. ”

“ These terms mutually exclude each other. The income of any individual may be made up from any one, two, or all three of these sources; but in the effort to discover the laws of distribution we must keep them separate. ”

“ In this country, the absence of income tax figures makes it impossible to get direct statistical evidence as to the distribution of incomes. The most careful estimate of the distribution of wealth in the United States yet made is that by the late Dr. ”

“ It is evident that a change in the volume of output and employment will, indeed, cause a change in income measured in wage-units; that a change in the wage-unit will cause both a redistribution of income between borrowers and lenders and a change in aggregate income measured in money ”

“ There ought normally to be a gradual increase in the proportion of the national income accruing to labor, for as production increases by virtue of improvements in methods, the share of capital being limited by competition, there becomes available a greater dividend for the wage earners ”

“ Wages, profits, interest and rent take the product.—It is common to consider distribution as made in the forms of wages for labor given without risk as to the product, profits to the one whose labor is associated with risk of loss as well as gain, interest to the one who furnishes capital in any form and waits for his compensation, and rent to the landlord, or owner of estate, whose property is used for a definite time and returned. ”

“ No Wealth is completely produced until it has been delivered to ultimate consumers. But Distribution has to do with Wealth apportionment.
In apportionment, or Distribution, there are two major categories, Wages and Rent, corresponding respectively to the two Production categories, Labor and Land. A minor Distributive category, corresponding to the minor category in Production called Capital, is distinguished as Interest. This term identifies the earnings of Capital. Inasmuch, however, as Capital is part of Labor-produced Wealth, Interest must be a subdivision of Labor-earned Wages. ”

“ The increased effectiveness which comes by reason of the increased population attaches to all labour, and the gain on the superior qualities of land will more than compensate for the diminished production on the quality last brought in. The aggregate wealth production, as compared with the aggregate expenditure of labour, will be greater, though its distribution will be more unequal. ”

“ As the net national income, following the three great factors of all economic production, is divided into three great branches, rent, wages and interest on capital, the net income from any private business may be reduced to one or more of these branches. ”

“ As has already been suggested, the efficiency of the wage earners plays a part in determining their field of employment in this competition for employment.
Secondly, the simpler statements of the action of the factor of relative plenty and scarcity, such as are represented by the marginal diagrammatic expositions familiar in economics, obscure the fact that distribution is a process in which human wills are actively engaged. The constant assertion of will is a real force in the working out of distribution. ”

“ Let it now be carefully observed and faithfully remembered in this connection, that however various the kind and the amount of Wealth that individuals receive, each variety is but a subdivision of Wealth as a whole, and is therefore either Wages or Rent, those being the two primary divisions of Wealth in Distribution. A “captain of industry” may get a large share of Wealth for his service while a skilled laborer gets a small share for his; but each will take his share from Wages, not from Rent. ”

“ Presumably, then, as Production of Wealth has two Basic factors—in technical terms Labor and Land, in other terms Man and Natural Resources—so Distribution of Wealth has two basic apportionments, one corresponding to the Labor or Man factor in Production, the other to the Land or Natural Resource factor—Wages for Labor, Rent for permission to use Land.
That there can be neither Wages for Labor nor Rent for Land unless Wealth has been produced, is a manifest law of nature. The nonexistent being naturally indivisible, Production of Wealth must precede Distribution of Wealth. ”

“ The demand for labor, as for every other commodity, depends, on the one hand, on the value in use of it, and on the other, on the purchaser's capacity to pay for it (his solvability) , These two elements determine the maximum limit of wages, as [Pg 52] the means of support considered indispensable by the workmen determine the minimum. There are circumstances conceivable under which the rise in wages might entirely eat up rents; but there must always be a portion of the national income reserved to reward capital (its profit) . ”

“ If the industrial, commercial and leisure classes of the population are collectively considered, total income and aggregate prices are subject to similar concurrent changes. It is a truism, often overlooked, that the sum of prices paid constitutes the total of wages, interest, rents and profits which compose the money-income of society and, per se, the direct means of acquiring the necessities and comforts of life. The measuring and estimating of changes in the cost of living, therefore, is resolved into a comparative study of incomes and expenditures. ”

“ A small portion of the American people are in receipt of incomes that necessitate a report to the revenue officers. Among those persons, a small number are in receipt of incomes that might be termed large—incomes of $10,000 or over, for example. Among these persons with large incomes the majority of the income is secured in the form of rent, interest, dividends and profits. The higher the income group, the larger is the percentage of the income that comes from property holdings. ”

“ That is to say, land, labor, capital and managerial ability have contributed in varying degrees to the production of a certain amount of current wealth, and the problem of functional distribution is to ascertain how the net product resulting from these joint efforts is divided. How much goes to rent, how much to wages, how much to interest and how much to profits? The second kind of distribution is the division of the wealth of society among individuals or families ”

“ With full recognition of the roughness of the work in this study, I hold it be sufficient to dispel the idea that something like 65 per cent of the wealth of the United States is owned by less than 2 per cent of the people, and consider that it clears away the seeming paradox between that idea and the established fact that about 70 per cent of the national income, other than agricultural, goes to the wage earners, with only 30 per cent to property and management. ”

“ This group of theories also rests upon the assumption that there is a fixed relation between the productive contribution of a group of workmen and the wages received by these workmen.
The fixed group demand theory has been summarized as follows: "The demand for the labor of the group is determined by the demand for the commodity output of the group. The community—wealth and distribution remaining the same—has a fairly fixed money demand for the commodities of a group. ”

“ It seems as if we can take the formulas and graphs of the statics case, and compare real incomes regardless of the time. However, in dynamics, ‘minimum income’ is not just ‘income’ but is a mechanism. The concept of M is that it picks out one income as the minimum, but it can pick that income at a different rate of growth depending upon the mechanism. The interaction between indexation, net subsistence, the tax parameters cause a multiplier effect. ”

“ In the distribution a certain minimum is first assigned for the subsistence of every member of the community, whether capable or not of labor. The remainder of the produce is shared in certain proportions, to be determined beforehand, among the three elements, Labor, Capital, and Talent. [pg 167] The capital of the community may be owned in unequal shares by different members, who would in that case receive, as in any other joint-stock company, proportional dividends. ”

“ For, since the distribution of wealth is a division, in ascertaining what fixes the share of the produce that goes as rent, we ascertain also what fixes the share that is left for wages, where there is no cooperation of capital; and what fixes the joint share that is left for wages and interest, where capital does cooperate in production. ”

“ There are many causes which in practice may prevent the correspondence being complete; but that the general way in which the income is actually distributed is based on the amount produced by these three things respectively,—Land, Capital, and Human Exertion,—is a fact which no one can doubt who has once taken the trouble to consider it. ”

“ While population increased in the thirty years by 22 per cent., the number of incomes liable to income-tax increased by 161 per cent., and of these, the incomes that have increased in much the largest proportion are precisely those middling or lower middling incomes which I have before shown to have unfortunately declined since 1688. While the number of incomes over £1,000 a year has increased by 165 per cent., the number of incomes between £150 and £400 a year has increased by 256 per cent. ”

“ Profits under Modern Conditions," and "The Natural Rate of Wages." They are studies of the new conditions of the distribution of wealth resulting from the interference with competition caused by pools, trusts, labor unions, etc., and aim to show how much of the Ricardian theory of distribution persists in this new stage of economic evolution. ”

“ The starting point of further study is a knowledge of the forces which govern the distribution of the product of industry at the present time in the United States—that is, a knowledge of the principles of distribution. Our intention, however, is to undertake that study only in so far as it is necessary to explain how wage incomes are determined. ”

“ Distribution must now be considered from a non-competitive point of view; and the storm center of discussion will be found in the treatment of rents or monopoly gains. Wages are individual products; but interest and rents must be held to be social, or at least semi-social, products. ”

“ His conclusion is that "the wages of a workingman are ultimately coincident with what he produces, after the deduction of rent, taxes, interest, and the interest of capital." According to his analysis, when in any case of production the labor is distributed, the ratio of the final degrees of utility of the products equals the ratio of the productiveness of the labor concerned in each product. ”

“ We propose to show what Labour can effect, and how it is to be encouraged and economized and rewarded: to treat of Capital, its nature and operation, and the proportions of its increase; and to exhibit the union of these two mighty agents of Production. Under the second head, Distribution, occur the great questions of Rent, Profits, Wages, and Population, the various modes of Interchange at home and abroad, including the consideration of all Monopolies, domestic and foreign. Under the third head, Consumption, are considered the modes of Demand and Supply, and of Taxation. ”

“ Besides, in both instances, it is necessary to calculate the number of men who live from the national income, the average amount of their indispensable wants, and the average price in money of the same, in order to determine the free national income by deducting the sum total of these average wants, estimated at this average price. ”