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CHAPTER XIII

VALUE AND DISTRIBUTION

109. Restatement of the Theory of Distribution. We have now surveyed, in broad outline, nearly the whole field of consumption, production and distribution. Before we go on to consider the causes which control the supplies of workmen and capital goods in each industrial community and thus figure among the ultimate determinants of economic relations it will be well to restate, in general terms, the conclusions to which we have already come.

Goods are valued and command prices because they have utility and because their supplies are limited in comparison with the demand for them. From the side of consumers the law that controls prices is that the price of a good tends to correspond to its marginal utility measured in terms of money to marginal consumers. From the side of producers the law is that competition tends to bring about a correspondence between the price of a good and the expense of producing it to representative firms. Logically the explanation of the shares into which the aggregate prices paid for the annual products of industry are distributed might be worked out by taking either of these laws as a starting point and following it to its ultimate conclusions. We have preferred in this work to make the law of prices from the side of producers our point of departure.* In pursuance of this plan we defined prices conforming to the expenses of production of representative firms as normal and explained monopoly and competitive profits as surpluses due to dis

*

Cf. Böhm-Bawerk's Positive Theory of Capital for a brilliant illustration of the other plan of procedure as regards the share, interest.

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crepancies between actual, or market, and normal prices. Having disposed in this way of departures from the normal, we turned next to the explanation of the shares that make up the expenses of production. Rent was explained as the differential return due to differences in the situation and quality of different pieces of land and natural resources, necessary to adjust the returns to labor and capital on superior to those on marginal lands. For competition always tends to hold wages for different grades of labor and interest for capital goods all over the industrial field at their respective levels. Rent is thus the share of the price of the larger product obtained on superior as compared with marginal land that may be claimed by the land-owner as economically due to the land, since the shares that labor and capital can claim as economically due to them are determined by what they can produce at the margin. In this sense we may say that rent is the share of the price that land produces. Finally, by means of the analysis just completed (Section 108), we saw that under conditions of free, all-sided competition, time being allowed for such competition to work out its full effects, the parts of the product at the margin of indifference due respectively to marginal workmen and marginal capital goods could be compared, and to each would be assigned the share of the price corresponding to its contribution to the product.

IIO. Caution Against Unwarranted Inferences from the Theory of Distribution.-Lest the true significance of the law of distribution to which our analysis has brought us be misconceived, it will be well to consider carefully certain conclusions that might seem to follow from it, but that really do not. First, then, although we have found it convenient to give great prominence to the tendency of competition to cause prices to correspond with the expenses of production of representative firms, nothing in our analysis would justify us in saying that these expenses determine prices. On the contrary, it would be nearer the truth to

say that prices, determined by the money equivalent of the marginal utilities of goods to marginal consumers, determine the expenses of production. But this statement also would fail to tell the whole truth. Prices are paid for goods because of limitations on their supplies. These limitations under conditions of free, all-sided competition are due in turn to limitations on the supplies of the factors of production-superior land and natural resources, workmen of all grades, capital goods. Thus if prices determine the expenses of production, the causes necessitating expenditures in production play a part in determining prices. The chain of causation is not straight, but returns upon itself in a circle. Each influence that needs to be considered acts and reacts upon all of the others.

Secondly, since we cannot logically say that the expenses of production determine prices, then neither can we say that a particular share in the expenses of production, such as wages to marginal workmen, determines the part of the price corresponding to it. When we assert that wages to marginal workmen tend to equal the price of that part of the product which is economically imputable to the labor of these workmen, we do not mean that the price of part of the product is determined by wages. The determination of price is a complex process and wages figure in it only as the limitation on the supply of labor is one of the causes of the limitation on the supplies of consumable commodities which causes them to command prices. The competitive bidding of entrepreneurs for the limited number of marginal workmen tends to raise the price or wages paid for their services to a level with the price of the part of the product imputable to their services. In this sense and only in this sense can we assert that competition tends to make wages equal what the factor, labor, produces.

A final misapprehension to be guarded against is that the law of competitive distribution which has been stated is a justification of such distribution. Economically speaking,

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landowners may get only the equivalent of what their land produces, workmen may get the full equivalent of what their labor produces and capitalists may get only what their capital goods produce, and yet this may be a very unfair division of the product. It leaves entirely unconsidered two questions that are fundamental to any decision as to the justice of the system, that is, is there a fair division of opportunities for individuals to develop into efficient producers and is the private ownership of land and capital goods itself just? Our opinion touching the first of these questions was indicated in the discussion of the causes of differences in rates of wages (Sections 97 and 98). In answer to the second some views are advanced in the closing chapters.

The law of competitive distribution, as these three qualifications on conclusions that might be drawn from it suggest, is not the economist's last word touching any important problem. It is merely an aid towards an understanding of the complexities of actual industrial life in which monopoly and change are even more conspicuous than what we have designated as "normal" conditions.

III. The Growth of Population in the Nineteenth Century. Before entering upon a discussion of the causes which control the growth of population or the supplies of workmen in different countries, it will be suggestive to examine the facts revealed by population statistics. Some of these are indicated in the following table:

GROWTH OF POPULATION, 1800-1900

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The striking differences in rates of growth between the United States and the older European countries are readily accounted for by the wealth of undeveloped and even unappropriated natural resources that were available in the New World up to the very close of the nineteenth century. Through doubling itself on the average once every twentyfive to thirty years, the population of the United States is rapidly bringing the country, however, into the same situation as regards density that prevails in Europe, where the aggregate population little more than doubled during the whole nineteenth century. Even more interesting than the differences in rates of increase shown by a comparison covering the whole nineteenth century are those displayed by European countries in the last generation. Thus from 1871 to 1901 the population of Germany increased 38 per cent, that of the United Kingdom 32 per cent and that of France less than one per cent.

The source of these variations in the rates at which the populations of different countries grow is to be sought, of course, in the relation between their birth and death rates and between immigration and emigration. For our present purpose we may confine attention to the former, since immigration has no direct effect upon the population of the world as a whole, however much it may affect that of particular countries.

BIRTH, DEATH AND MARRIAGE RATES, 1871-1890* Excess of Births

Births Deaths

over Deaths Marriages

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8.0

16.3

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* These statistics are taken from Mayo-Smith, Statistics and Sociology, Book I., Chaps. V., VI. and VII.

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