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NOTE 9.05. A Note on the Fallacy of “Distribution”

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5. A Note on the Fallacy of Distribution

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Ever since the days of early classical economics, many writers have discussed distribution theory,

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as if it were completely separate and isolated from production theory. Yet we have seen that

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distribution theory is simply production theory. The receivers of income earn wages, rent,

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The theory of the market determines the prices and incomes accruing to productive factors, thereby also determining the functional distribution of the factors.

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Personal distribution, how much money each person receives from the productive system, is determined in turn by the functions that he or his property performs in that system.

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There is no separation between production and distribution, and it is completely erroneous for writers to treat the productive system as if producers dump their product onto some stockpile

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Many people criticize the free market as follows.

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Yes, we agree that production and prices will be allocated on the free market in a way best

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fitted to serve the needs of the consumers, but this law is necessarily based on a given

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One initial distribution of income among the consumers.

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Some consumers begin with only a little money, others with a great deal.

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The market system of production can be commended only if the original distribution of income

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meets with our approval.

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This initial distribution of income, or rather of money assets, did not originate in thin

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air however.

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It too was the necessary consequence of a market allocation of prices and production.

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It was the consequence of serving the needs of previous consumers.

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It was not an arbitrarily given distribution, but one that itself emerged from satisfying

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consumer needs.

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It too was inextricably bound up with production.

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As we saw in Chapter 2, a person's presently owned property could have been ultimately

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obtained in only one of the following ways.

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Through personal production, voluntary exchange for a personal product, the finding and first

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using of unappropriated land, or theft from a producer.

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On a free market, only the first three can obtain, so that any distribution served by

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producers was in itself the result of free production and exchange.

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Suppose however that at some preceding time the bulk of the wealthy consumers had acquired

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their property through theft and not through serving other consumers on the free market.

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Does this not instill a built-in bias into the market economy, since future producers

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must satisfy demands ensuing from unjust incomes?

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The answer is that after the initial period, the effect of unjust incomes becomes less

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and less important.

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For in order to keep and increase their ill-gotten gains, the former robbers, now that a free

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Every economy is established have to invest and recoup their funds so as to serve consumers

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correctly.

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If they are not fit for this task and their exploits in predation have certainly not trained

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them for it, then entrepreneurial losses will diminish their assets and shift them to more

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for Able Producers