Income distribution

Say summarised his thinking on income distribution as follows:

once created, each product pays, through its acquired value, the totality of services used for its production. Several of these services were paid for before the product was created, which required the advance of someone; other services were paid for after the product was created and sold.

(Say 1814, 687)

He identified four kinds of income: wage, interest, rent and the remuneration of the services of the entrepreneur. This classification was partly due to his analysis of the role of the entrepreneur. For Smith, the entrepreneur is usually the capitalist, the agent who invests the capital: he focused on profit as a whole and stressed that profit was not the remuneration for supervision and direction - such tasks could be performed “by some principal clerk” (Smith 1776, 66). For Say, whether the entrepreneur owns a fraction of the capital of the firm was of no importance: what matters is the fact that he manages it. English writers, he observed, failed to distin­guish between the interest of capital and the revenues that pays for the service of employing capital and other productive services, which require the specific abilities

and talent of the entrepreneur. The difference between the two types of revenues is that the latter are uncertain (Steiner 1998). Smith disregarded the issue and “ran into difficulties” (Say 1803-41, 730 n1).

The prices of the productive services are, like those of the products, determined by supply and demand. The demand for services is indirect: “when a product is in demand, all the services, which concur to its production, are also in demand” (Say 1828-29, 705) and their demand rises with that of the goods. Thus, when wealth increases, the amount of capital increases, interest declines and wages rise.

Land rent is determined in the same way as wages and profits. Land differs in location and fertility: each kind of land is subject to a specific demand, which deter­mines its remuneration. Say thus criticises the Ricardian theory of rent and particu­larly the principle that rent is not a constituent part of the price of commodities.

David Ricardo admits... that it is the increase in population, that is, the sum of needs, that raises the price of corn and allows a farmer to pay rent. He con­cludes that “corn is not high because a rent is paid, but a rent is paid because corn is high”. It is also the case for all products, whatever they are.... Thus... the needs of society determine the price of all products and allow the entrepreneur to pay the profits of labour and capital, and even sometimes a monopoly profit, when such a monopoly is necessary for production, which is the case for agricultural products.

(Say 1828-29, 801-2)

However, this proposition does not allow to exclude rent from costs or to state that the existence of land of poorer quality is the cause of rents made on the more fertile land.

One difficulty remains, however. Land is not the only productive natural factor: how can we explain that it is the only one that generates income? This is because it could be appropriated by men. This ownership must thus be justified. Say (1819, 793) used a utilitarian argument: “Land is cultivated, and we obtain its products in some abundance, thanks to its appropriation”.

Income distribution also plays a central role in Destutt de Tracy’s work. He believed that “mankind as a whole is rich and powerful and sees its means of exist­ence grow every day, but the same cannot be said for individuals” (1815, 297). Inevitably, resources and wealth are unevenly distributed. Inequality is a fact of nature, as individuals do not have the same level of force, intelligence and happi­ness. Inequality is a necessary evil, and, as a result, laws should aim to protect the weak, not the powerful, as it was too often the case.

Humanity, justice, and politics also command that among all the interests, those of the poor should always be the most consulted and the most respected persistently; and by poor, I mean simple wage earners and especially low- wage earners The true interests of the poor... are always in line with

reason and with the general interest.

For him (1815, 318), society was made up of “two large classes, one comprising those who, without having any capital, work in exchange for a salary, and another that included those who employ them”. The latter consists of two sorts of agents: all types of capital owners who loan their money or their land, and the entrepre­neurs who earn both the income of their capital and the gains derived from their own work. Wages are determined according to what was to be called later the wage funds theory, that is, based upon the amount of funds that capital owners and entrepreneurs use to pay workers’ wages divided by the number of individu­als supplying their labour. Following Malthus’s population principle, wages are paid at the minimum required for subsistence, leading population growth to be stationary in nations reaching a certain level of economic development. Most clas­sical authors believed the principle to be always verified: the population level is always proportional to the available quantity of subsistence and there is no reason to assume that wage funds would increase. For this to happen, funds invested by entrepreneurs should rise, but “once all the profitable employments are made, it is no longer possible to create new jobs without destroying existing ones, unless new outlets arise” (Destutt de Tracy 1815, 321). In order for entrepreneurs to accumulate capital and hire new workers, new market opportunities must justify the production of additional goods. The only way to increase wage funds was to lower production costs, a convenient way to create new markets, new businesses and new jobs.

A society divided into classes does not imply that their interests are divergent, Destutt de Tracy insisted. In his mind, the interests of the rich and those of the poor coincide with the interests of society. Like the rich, the poor are owners: they own themselves, their faculties and their products; in short, they own capital. The interest of the poor is to be given free disposal of their person and of their labour so that their work provides them with sufficient and stable incomes. The poor are also consumers, and as consumers, they have an interest in being supplied as cheaply as possible. No one has a greater interest in being served as cheaply as possible, than the person who has limited resources.

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