IV.
DISTRIBUTION.

I. Distribution in economics embraces those principles on which the proceeds of industry are divided among the parties employed in their production.

If each man owned all the capital concerned in his business, and performed all the labor involved in each product, this question would be a very simple one. But when, as in the manufacture of chairs, of hardware and watches, and in the building of houses, there are many laborers of widely diverse capabilities, and especially when we remember that there are innumerable subsidiary occupations, as in the preparing of materials, the making of tools and machines, the protection of the workmen, the superintendence of the business, and in many other ways, the problem becomes a most complicated one.

The subject may be divided as follows:

1. Wages, or the compensation of labor.

2. Profits, or the compensation of the proprietor or employer.

3. Interest, or compensation for capital reckoned as money.

4. Rent, or compensation for the use of land.

5. Taxes, or compensation for protection by the government.

II. On the subject of wages diverse and contradictory opinions prevail. A large proportion of the British economists hold the theory that a low rate of wages is all that can be maintained, or is, on the whole, desirable among ordinary unskilled laborers. That a man should have compensation sufficient to furnish him with such food, raiment and shelter as are essential to keep him in good working condition; also, in addition, enough to enable him to support a wife (with what she can herself earn), and to rear at least two children, themselves prepared to become laborers; and to make some additional allowances for probable periods of sickness and inability to labor. So much is deemed absolutely essential even to the capitalist and employer, in order that their interests may not suffer. The school of writers referred to profess to find in the human constitution a law which prevents wages from going much beyond this limit. It is said that if they do go much beyond this, the population will multiply so rapidly, and the number of laborers will so greatly increase, that wages will not only fall back to their limit, but that great suffering will ensue.

Most American writers reject this view, though some of them appear to hold opinions logically implying it. Henry C. Carey takes the ground that there is not only no such law, but that there is one of a diametrically opposite character, which as thoroughly coincides with, as this antagonizes, the general provisions of an all-wise and beneficent creator. This law, as developed by Mr. Carey, is substantially that in any community where violence is not done to natural principles in the relations between capitalists and laborers, the share of the latter in the joint product to which both are contributors, is constantly increasing. While at first the capitalist receives much more than half, as time and the development of society go on his proportion is steadily diminishing till it becomes a small fraction of the whole, while that of the laborer is steadily increasing. At the same time, though the proportion of the capitalist is always smaller, the amount is always larger, owing to the always increasing productiveness; and for the same reason both the proportion and the amount received by the labor is enhanced. Evidence of this might be made obvious by comparing the compensation received by laborers in the earlier ages of almost any civilized race as compared with that received in its most advanced stage; and this, too, notwithstanding the vast imperfections under which society has labored and the unnatural conditions to which the laboring classes in all the earlier periods of history have been subjected. In the opinion of some writers this law is one of the grandest and most important of the recent discoveries in political economy.

III. Wages depend upon various considerations. Some of the chief of these are physical ability, greater or less degree of skill, agreeableness or disagreeableness of the work, greater or less difficulty and cost of preparation, constancy or inconstancy of employment, amount of trust involved, intellectual and moral qualities required, social conditions, the character of the government, etc.

There is a distinction to be made between nominal and real wages. The former is the amount of money received for a certain amount of labor. The latter is the amount of useful commodities which that money will purchase. Sometimes a dollar a day is better compensation than a dollar and a half at other times, since in the latter case the dollar and a half may purchase fewer of the necessaries of life than the dollar in the former case.

Men fail sometimes to get a clear understanding of the terms dear labor and cheap labor. A Russian serf at fifty cents a day is dearer than an ordinary American laborer at a dollar and a half, simply because the labor of the latter would be about four or five times as efficient as that of the former. In other words, that labor is the cheapest which will produce the most at the least expense.

The interested and wise laborer will seek information wherever he can find it on the effect of even moderate education on individual wages, (and this he will find to be very considerable); on the sanitary conditions which are best for laborers, the real and ultimate effects of strikes and trades unions, and the advantages and disadvantages of coÖperative industry and trade, and the great benefit to be derived from making the laborer a sharer in the profits of any business in which he may be engaged. The employer also would receive great benefit from a careful study of these same questions, as well as from a consideration of the results of paying in all cases not the lowest wages for which labor can be procured, but the highest which he can really afford, since in many cases the quality and quantity of work secured from this cause, more than compensates the extra outlay.

IV. Profits are the share of the product which go to the proprietor or employer. Very often the latter are confounded with the capitalist, and hence arises a like confusion concerning the nature of profits. Among more recent writers a distinct place is assigned to the employer, whereas formerly he was practically lost sight of. But in our modern system of industry he is one of the most important, if not actually the most important factor in the system. The capitalist is not necessarily an employer—more frequently than otherwise he is incompetent for this office. Nor is the employer always a capitalist. He is a man who must have the somewhat rare ability to organize and superintend labor so as to get the most possible out of it, and at the same time have such financial talent as will enable him to make the best possible disposition of his means in buying material, etc., and the best possible disposition of his goods in selling. Frequently the capital which he uses is borrowed. Profits, then, are what remains after paying all stipulated wages and salaries, including a fair compensation to the employer himself, together with the material, rent, interest on capital owned or borrowed, taxes, insurance, etc. Obviously no one would assume all the care and responsibility, and incur the risk implied in any considerable business unless something more was likely to come from it to him than what his talent and ability would bring in the way of salary. Sometimes the profit is very small; sometimes, also, it is very great. Free competition will furnish the requisite conditions usually, so that the profits will not be so large as to be disadvantageous to the community generally.

V. Interest depends upon various considerations. That the compensation implied is proper is obvious from the fact that though ostensibly money is that which is loaned, in most cases it is really capital in some other form; and no one denies that when a man lends his horse, or his mill, or his farm, he should receive something for the use of it.

The rate of interest depends upon several conditions: 1. The amount of money in circulation. 2. The amount of other capital. 3. The rate of profit, which again depends upon the industrial system and the state of society; as society develops the rate diminishes. 4. The security or insecurity of property. 5. The facilities with which the securities can be reconverted into money. 6. The promptness and regularity of the payment of the interest. On these last two conditions rests in part the low rate of interest on government bonds.

VI. Rent is intimately connected with the value of land, and land is the most important instrument and condition of wealth. In most countries, other than ours, the land is principally in the possession of a few owners who let it to other parties for agricultural and other purposes, and receive compensation therefor. The amount of compensation depends upon the value of the land. For this latter reason we may treat the whole question of the value of land under the head of rent, though on some accounts it should be considered in another place.

The theory respecting rent which has prevailed in England, and largely in this country for the most of the present century, is that of Ricardo; and closely connected with it is his theory of value. He held that rent arises in this way: On the first settling of a new country, where there is an abundance of more or less fertile land, none of the land has any value. Every man takes as much as he wants, selecting, of course, the most productive. As population increases the best land will be all taken up. Then those who want land must have a poorer quality, or a second grade. Now, one who gets this second quality would rather pay something for the first quality than to have the former for nothing. So when all the land of the second grade is all taken up, and the third quality begins to be occupied, it is deemed more profitable to pay something for the second quality, and still more for the first quality than to have the third for nothing. Closely connected with this theory of rent is that of Malthus concerning population, which is, that there is a law of the uniform increase of population, so that unless artificial checks are applied over-population must, at no distant day, become the condition and bane of humanity. Another theory closely related to both these is that of “diminishing returns,” as stated by J. S. Mill. Substantially this is, that after a certain, not very advanced period in the development of agriculture, a given amount of land will produce less and less in proportion to the labor expended upon it. That is, after a certain degree of culture, a given quantity of land which yields a given quantity of product, while it will produce more if the labor upon it is doubled, will not produce double the former quantity. It follows from these theories, taken in combination, that as men multiply and their wants increase, the provision for those wants proportionately diminishes—a most unnatural and dismal theory, and up to the present time quite contrary to human experience.

A more reasonable, more natural, and far more hopeful doctrine is that developed by Mr. Carey. He declares it altogether untrue that the most productive lands are those first occupied. On the contrary, in the infancy of society men are wholly unable to subdue the richer soils. These must wait till society becomes more numerous and capable of combination. At first only the thinner soils can be cultivated, on account of the feebleness of the inhabitants. Then, as the latter increase in numbers and in the power and art of combination, the deeper and heavier soils can be subdued, and finally, those which are covered with gigantic forests or rich swamps and vast deposits of vegetable mold. These are many times more productive than the soils first cultivated, and thus for a long period proportionately increasing instead of diminishing returns are found to go with the increase of population. There is scarcely any nation, the inhabitants of which have even now cultivated its most productive soil, and it is likely to be some time yet before the theoretical limit of diminishing returns is reached.

The Malthusian doctrine of population is also widely, though not universally rejected, and it is evident that various counteracting principles prevail to affect the law of the uniform increase of population, even if that were demonstrably or approximately true. It is tolerably obvious that the fecundity of the human race diminishes as its development and civilization increase. This, taken in connection with the preceding statements, gives us great grounds, at least, for dispensing with the more forbidding features of what has been called “the dismal science.”

Mr. Carey’s theory of the occupancy of land, as he abundantly shows, is consistent, and the only one consistent, not only with the great fundamental principles of association, but with the facts reached in the history of every civilized nation. He also holds that the value of land depends upon the same principle as that of any other value, namely, the labor that has been expended upon it. For, as he shows, there is in general no land that has a value which exceeds that of the labor which has been requisite to bring it and the property related to it into its present condition.

VII. Taxation furnishes the compensation paid to the government for its protection. Government is simply the agent of society, and those who are the individual constituents of this agency are entitled to a share of the aggregate product proportionate to the amount and quality of the labor bestowed.

The great economical question concerning taxation is how to secure the greatest degree of protection to persons and property at the least possible expense to the persons protected. Its decision depends partly upon the expensiveness of the government agencies, and partly upon the methods of levying and collecting the taxes. As to the former, there is a great variety of usage in different nations, or in the same nation at different periods. Not only is this difference seen in the amount of compensation paid to personal agents directly concerned in the administration of public affairs, but in the costliness of the public buildings and other means for carrying out the purposes of the government. It is evident a true economy does not demand either parsimony or niggardliness in these respects. The best agents can only be secured by making the compensation to correspond to that paid for the same grade of services in other employments. The edifices and other structures and furniture should both correspond with the purposes for which they are to be used, and with the general style of expenditure prevailing in the community. But all expense for the mere sake of show, all extravagance and prodigality, and all compensation bestowed as a reason for partisan service or out of personal favoritism, is not only uneconomical, but for the most part fraudulent.

In the levying and collecting of taxes for revenue two general methods are pursued, namely, direct and indirect. In the former the tax is paid by the party upon whom it is levied. Such are taxes upon real estate, tools, machinery, domestic animals, etc. In indirect taxation the tax, though levied upon one person, is usually paid by another. Thus, during our civil war, there was a stamp-tax of one cent on each bunch of matches. The manufacturer paid the tax to the government, but the consumer of matches paid a cent more for each bunch of matches than it would have otherwise cost him. Duties on foreign imports are of this character.

Direct taxes, though by far more just and equable than indirect, are far less popular. The reason of this is doubtless to be found in the fact that when the tax-payer meets his obligation in the former case he does it consciously and with a clear sense that he is parting with so much actual wealth. In the latter case it is often done unconsciously, and almost always without realization of the fact. Yet, for this very reason, it is better that the tax be direct than indirect.