PART FOUR

THE DISTRIBUTION OF WEALTH

Which has to do with the shares into which the products of industry are divided and the awarding of these shares to different groups and classes

CHAPTER XXX

THE LAW OF VARIABLE PROPORTIONS

The problem of the distribution of wealth is the problem of dividing the products of the industry of the community among the various classes. The claim of each class to a share of the wealth is usually based upon the claim that each has contributed something to its production. The contribution may be labor, either mental or physical; it may be capital, or the results of foresight or investing; or it may be land which the owner has appropriated or otherwise come into possession of.

The market value of services. The market value of what each has to offer determines his share in the product. If the market value of labor is high, the laborer gets a large share; if it is low, he gets a small share. The same is true of that which each has to offer. Our first problem must be, therefore, to study the market value of each factor, or agent, of production in order to find out why the seller of each factor gets a large, or a small, share.

The income of each class, however, is a flow rather than a fund or a lump sum. The laborer sells not himself but the flow of productive energy which he can exert during a given period of time. The capitalist sells not his capital but the flow of utilities which come from his capital during a given period of time. If the laborer were a slave, he might be sold bodily, and in that case he would bring a price. The capitalist and the landlord may sell their capital or their land. This involves a question of exchange and market price. When they sell the flow of utilities which their properties yield, we have interest and rent, which are questions of distribution. The following outline will indicate the relation of these various problems to

the general problem of valuation. For convenience the flow of utilities yielded by the various factors of production are called services.

Why productive agents are desired. The reason for paying for an agent of production is that it helps to produce something which is desirable. Its value is derived from that of its product. The greater its product, or the greater its contribution to the joint product of a group of factors, the greater its value. It is therefore of the utmost importance that we find out, if such a thing is possible, how to determine the contribution of each factor. This is one of the most elusive problems in the whole field of economics. The student is requested to study this problem as carefully and intensely as he would an intricate problem in physics or chemistry.

A combination of the factors of production not a chemical combination. In Chapter XV we saw the necessity of a proper balance, not only among the factors of production but also among all the factors of national life. But some variation among the factors of production must always be allowed. What constitutes the perfect balance depends upon a number of considerations which have not yet been discussed. A number of factors of production, when used in combination, are not like the elements in a chemical reaction or the colors in a picture. These probably permit of no variation. The factors of production may always be combined in different proportions without destroying the result. One can grow a hundred bushels

1 Compare note by the author on "The Place of the Theory of Value in Economics," in the Quarterly Journal of Economics, November, 1902.

of wheat in a year by using little land and much labor or by using much land and little labor. Which is the more economical combination will depend upon the relative cost of land and labor. Where land is cheap and labor dear, it pays to use much land and little labor; where land is dear and labor cheap, it pays to use little land and much labor.

In an actual chemical combination the various elements have to be combined, apparently, in fixed proportions, without any variation whatever. This is known as the law of definite proportions. But in order to induce a given chemical combination, different substances have sometimes to be mixed in considerable masses. This gives rise to another law, which is as definite and as well understood as the law of definite proportions.

The law of variable proportions. Take, for instance, the juvenile experiment of mixing vinegar and baking soda for the purpose of producing a fizz. The actual combination of molecules which produces the gas that makes the bubbles doubtless follows the law of definite proportions. But not all the materials in the mixture will be thus instantly combined. At the end of a definite period of time, say a minute, some of the acid and some of the soda will remain uncombined, probably because a certain number of molecules of each never happened to come in chemical contact with the requisite molecules of the other. The greater the quantity of vinegar in proportion to the soda, the greater the probability that each molecule of the soda will come in chemical contact with a molecule of acid. Therefore, the greater the proportion of vinegar to soda, the greater the proportion of the molecules of soda that will be used in the formation of gas, and, conversely, for the same reason, the smaller the proportion of the molecules of acid that will be used.

Many factors at work in combination. There are, of course, other factors in the problem, such as the size and shape of the receptacle in which the mixture is placed, the temperature of the mixture, the amount of shaking or stirring to which it is