Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
(?-1899)
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Editor/Trans.
First Pub. Date
1881
Publisher/Edition
New York: Maynard, Merrill, and Co.
Pub. Date
1899
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Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
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DISTRIBUTION OF WEALTH

I.377.1

DISTRIBUTION OF WEALTH. The study of the principles which determine the distribution of wealth, of the means by which that distribution is effected, and of the phenomena pertaining to it, constitutes one of the great divisions of political economy. This science is commonly divided into two or three parts; the first treating of the production, the second of the distribution, and the third, when a third is admitted, of the consumption of wealth. Hence, this is not a special subject, but a vast field of study embracing a great number of different subjects. To discuss the whole subject a volume would be necessary. It will suffice here merely to give some general notions of the subject, and to point out its principal subdivisions. We refer, for each of these subdivisions, to the special articles which treat of them.

I.377.2

—It is well understood that under the head of distribution of wealth we only mean here, and can only mean, the distribution or the division of the revenue of society, such as regularly takes place among all its members. To understand this distribution it is necessary to consider, in the first place, of what this revenue consists, and what are the principal agents which have concurred in its formation.—"The whole amount of profit," says J. B. Say, "derived by an individual from his land, capital and industry, within a month, or within the year, is called, respectively, his monthly and his annual revenue. The aggregate of the revenues of all the individuals, whereof a nation consists, is its national revenue."

I.377.3

—Some writers on this subject have fallen into a grievous error, an error which has led them to the strangest conclusions. They imagined that in the revenue of a country was to be included only the net profit of the capital employed in the country, that is to say, in other words, the net profit of those engaged in industry, who are especially charged with turning capital to account. Thus, in an industrial enterprise, it would not be proper, according to these writers, to consider as gain to the community at large, at the end of the year, anything beyond the net annual revenue realized by persons engaged in industry themselves. They have not taken pains to observe, that the expenses incurred by the persons thus engaged in industry during the course of the year in order to attain their object. consist in great measure of wages distributed under various forms, and that these wages constitute the revenue of the workmen who receive them. The sums, too, which have been expended in the purchase of raw material or implements have been, in like manner, diverted into other channels for the support of labor, and have become sources of revenue for other workers. That which is to one man outlay, or an advance made to production, is revenue in the case of another. It is not, therefore, the net product but the gross product of industrial enterprises which constitutes the revenue of society or of a nation, and which, under various forms, is distributed among the individuals who compose the nation.

I.377.4

—In order to know how or among whom this revenue is to be distributed, it is necessary to know who those are who have concurred in its formation; in other words, who have been the agents of production in general.

I.377.5

—Production is generally the result of the co-operation of three principal agents, namely: 1. Land capable of cultivation, mines, quarries, and all natural agents. 2. Capital, which includes the implements of labor (among which are to be reckoned farms, factories, workshops, etc.), materials to which present labor is to be applied, means of subsistence for workmen, and generally all kinds of value, the fruits of past labor, which may serve to facilitate present or future labor. 3. Labor, meaning by this term not merely physical labor, but every exercise of the intellectual or physical faculties of man, which tend directly or indirectly to the production of revenue.

I.377.6

—All production is, we say, the result of the co-operation of these three agents, or of these three productive forces. They are combined in very different proportions, according to the kind of product sought to be obtained, but each is indispensable in the general work of production Without land capable of cultivation, mines and quarries, raw material could not be obtained, without capital, it would be impossible either to obtain it from the earth, or to work it; without labor, capital and land would be idle.

I.377.7

—Since, then, each of these agents is indispensable to production, it seems natural that each should share in the results, according to the measure of the service it has rendered This, in fact, is what actually takes place. There are, however, certain observations to be made on this subject.

I.377.8

—When natural agents are not appropriated, they have no claim on the result of production. The services they render are in such a case gratuitous. But when they are appropriated, as land capable of cultivation, mines, quarries, waterfalls, etc., generally are, their possessors naturally claim a part in the products due to their co-operation. These possessors exact payment for the services rendered by the natural agents which belong to them. It is very clear, of course, that it is not these inanimate natural agents which claim their share, but the men who have the services of these agents at their disposal because they have become the owners of them. With the question of the right of thus deriving a revenue from the services of inanimate agents we have here nothing to do; that subject will be treated of in its proper place. (See PRODUCTION.) It suffices for the present to state it as a fact, as being the natural and necessary result of the appropriation of these natural agents. As to capital, which is always appropriated, since it belongs of right to those who have brought it into existence or to their successors, it always claims its share; and this is equally true, and with greater reason, of labor which, excepting in certain rare cases, is not and never can be gratuitous.

I.377.9

—It is, therefore, between these three great agents of production that revenue is divided. To each of them there corresponds, besides, a distinct form of compensation, suited to the nature of its services.

I.377.10

—Rent corresponds to the services rendered by land or by other natural agents.

I.377.11

Profit is the term used to denote the ordinary remunerations paid for the use of capital, either when the holder of the capital uses it at his own risk, whether alone or in association with the capital of others; or interest, when the holder of capital, instead of employing it himself and at his own risk, lends it to another in consideration of a fixed rate of remuneration.

I.377.12

—The compensation of labor is generally expressed by the term wages, a term capable of universal application, although other terms may be employed according to the kind of labor referred to. But whatever term is used, and to whatever kind of labor applied, remuneration remains essentially the same, and is as much wages, as when used to express the compensation of the common laborer.

I.377.13

—It sometimes happens that the same individual participates in all three kinds of remuneration, rent, interest and wages, as the farmer, when he is at once, land owner, capitalist and workman. As proprietor of the land, he receives rent; as capitalist, profit or interest; and finally, as remuneration for his personal care and attention, he receives wages.

I.377.14

—The case of the same individual participating in two of these kinds of remuneration is much more usual. Such, for instance, is the case with a great number of landed proprietors, who commonly receive in rent remuneration for the use of the land, and, in interest or profit, remuneration for the use of the capital expended upon it. This is more especially the case with men in industrial enterprises who, without exception, receive, in addition to the remuneration of their labor, the profit on the capital to which that labor is applied. This is the case, too, with a great number of people who constitute the so-called wage-paid classes, such as laborers, servants, soldiers, sailors, etc.; for among these individuals there are many, who, besides the wages they receive for their labor, receive also interest on some amount of capital placed either in savings banks or elsewhere.

I.377.15

—There are also, however, a great number of individuals who receive but one kind of remuneration. In this category may be ranked, in the first place, the great mass of the wage-paid classes who have no other source of revenue than their wages; and many simple workmen, soldiers, sailors, even employes and public officials, are in this position; and there may also be included in it capitalists who live exclusively on the interest or the profit of their capital, invested either in the public funds, or in industrial companies, or elsewhere. But in whatever way these different kinds of remuneration are divided among men, the principle of the distribution of revenue is not changed, and the relation which we have established between remuneration and service remains intact.

I.377.16

—In consequence of the action of competition where that competition operates unopposed, these different kinds of remuneration constantly tend to become regular, being reduced to a common level for equal services. Thus, two pieces of land yielding equal advantages to those working them, will generally rent for the same amount. Two separate amounts of capital employed or invested in the same place but by different persons, will also usually bring the same profit or the same interest. In like manner, the labor of two men equally strong, equally active, equally skillful, will commonly obtain, under given circumstances, equal wages. There are, however, in respect to each of these species of remuneration, various causes which, under the action of competition itself, may produce great inequalities, quite as natural, too, as the general equality which we have just mentioned.

I.377.17

—In the first place, as regards arable land, it is very natural that more fertile or better situated land should bring a higher rental than land of less fertility or less well situated. As it is here the inequality of the services rendered which determines the inequality of remuneration, this circumstance does not in the least invalidate the general law which we have just established. As regards capital, there are inequalities as great, perhaps even greater, which are due to other causes. If it is a question of the profit to be realized by one employing his own capital, it is easily understood that this profit is in many respects aleatory, that is to say, subject to a great many risks, which may in certain cases transform it into a loss. It is therefore natural that this profit, in case of success, should sometimes be very great. The interest of invested capital seems more fixed, and in fact it is so; and yet it is susceptible of great variation due to the position of the borrower. and of the risks run by the lender. Finally, as regards wages, considerable variations may be noticed, but nearly all are explained and justified by the greater or less skill of the workmen, that is to say, by the inequality of the services rendered. Two manual laborers working under similar conditions, and with like energy, generally get the same wages, and the skillful workman gets higher wages simply on account of his skill. For the same reason the foreman of a workshop, the draftsman, the architect, and the public officer, although merely workmen too, yet commonly receive better wages than the best laborer, because to the labor of their hands they add also an intellectual labor, rarer and more precious. But we do not want to dwell upon these considerations; we merely wished to point them out briefly, referring for additional information to special articles, namely: on the subject of the remuneration of services rendered by natural agents, to the word RENT; on the subject of capital, to the words INTEREST and PROFIT; and on the subject of labor in general, to the word WAGES.

I.377.18

—There only remains for us to make two observations, one relative to the mechanism of the distribution of revenue, the other relative to the tax received by the state. The mechanism of the distribution of revenue is as simple as the principle itself. This distribution takes place everywhere through the intermediation of those engaged in industry, because these latter centralize in their hands, each in his own sphere, the means necessary to production. and because the results of production are realized in their hands also. Thus, the farmer who cultivates a piece of land, frequently the property of another, pays in the first place to the owner the rent of the land, plus the interest or the profit of the capital invested in it. He distributes, besides, among his regularly employed workmen. as also among those whose services he requires from time to time, wages for their labor. Sometimes, too, when he employs borrowed capital he pays to the lenders the interest due them. And all this comes from what his working of the land has produced. That which remains over and above this is his personal profit, and he keeps it as the wages of his own labor, and the profit of his own capital Thus, within the range of his occupation, rent, profit, interest, wages, are distributed by him. The same is true of all others engaged in industrial enterprises, each of whom is, in his sphere, the distributor of the products which he has realized. What he must distribute to others is ordinarily fixed and determinate; what he may keep for himself is variable, on account of the risks he runs, and of the greater or less success that may attend his operations; but this does not in the least affect the order of distribution. All that results from this is, that the person engaged in industrial enterprise, instead of finding a surplus at the end of the year which he takes as his own share, may be confronted sometimes with a deficit, and that as a consequence there should be some defect in distribution.

I.377.19

—Some economists have regarded the state as a fourth party sharing in the results of production, and the tax which the state receives as a particular form of remuneration to be added to the others. This manner of regarding the state and the taxes received by it, does not appear reasonable to us, inasmuch as it would completely disturb the simple order and mechanism of the distribution of revenue. It appears to us more consonant with the true principles of political economy to consider the state as a great business concern, and the government as a man of enterprise who renders to the nation which he governs certain services demanding, in return for them, a certain remuneration like any other entrepreneur; which remuneration he afterward distributes among his servants in the shape of wages. The state is indeed a business concern of a peculiar kind, which does not admit of competition within the sphere which it embraces, and the tax which it receives in payment for its services, instead of being freely debated about and voluntarily paid, is on the contrary, and as the nature of things requires it, imposed by itself. But these differences which are without doubt characteristic in other respects, and which constitute government an entrepreneur (undertaker) of a special kind, change in nothing the nature of things.

CHARLES COQUELIN.

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