provement through restrictive regulation. The practical probability, however, is limited by the wisdom or disinterestedness of lawmakers and administrative officials. If they are no wiser or more disinterested than the average buyer and seller, that probability is very small.

Regulation not always wise. Whether this theoretical possibility for improvement through restriction or regulation can be realized depends somewhat on the character of the government and its officials. The free trader has at least the opportunity to say that government is just as inefficient as business; that following the election is just as likely to lead one astray as following the market; that the political policy that will get the most votes is just as likely to be wrong as the commercial policy that will get the most money. Even granting, therefore, the theoretical possibilities of wise protectionism, he might deny the probability of ever realizingthese possibilities and affirm on the contrary that the generalerience is that when governments attempt to interfere with freedom of trade by any sort of protective policy, they usually make matters worse instead of better; that they are just as likely to protect the industry that ought not to have protection as the one that ought to have it; and that therefore the free-trade policy works better in the long run than the protective policy, in spite of all the theoretical possibilities of protectionism. The writer adheres to this opinion, not only with respect to the question of free trade and protectionism but with respect to most other questions of government interference.

COLLATERAL READING

DUNBAR, CHARLES F. The Theory and History of Banking (third edition, revised and enlarged by Oliver M. W. Sprague). New York, 1917. (The clearest exposition of the subject yet published.)

PIERSON, N. G. Principles of Economics, Part I, chap. i, §§ 2-6. New York, 1902. (A clear exposition of the theory of value.)

TAUSSIG, F. W. Principles of Economics, Book IV. New York, 1911. (A most complete statement of the principles governing international trade.)

PART V. DISTRIBUTION

CHAPTER XXXIII

THE LAW OF VARIABLE PROPORTIONS

The problem of the distribution of wealth is the problem of dividing the products of the industries of the nation 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, and which he puts to use or permits someone else to use.

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, when he gets interest, 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 and their land outright for a price. 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.1 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, or, as some would say, a part of the value of the product is imputed to the productive agent. At any rate, the producer of a desirable thing may itself be desired, or a thing may be desired because of what it will produce as well as for its own sake. 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 XVII 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. Factors of production, when used in combination, are not like the elements in a chemical reaction or the colors in a picture. These

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