5. A Note on the Fallacy of Distribution
Ever since the days of early classical economics, many writers have discussed distribution theory,
as if it were completely separate and isolated from production theory. Yet we have seen that
distribution theory is simply production theory. The receivers of income earn wages, rent,
The theory of the market determines the prices and incomes accruing to productive factors, thereby also determining the functional distribution of the factors.
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.
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
Many people criticize the free market as follows.
Yes, we agree that production and prices will be allocated on the free market in a way best
fitted to serve the needs of the consumers, but this law is necessarily based on a given
One initial distribution of income among the consumers.
Some consumers begin with only a little money, others with a great deal.
The market system of production can be commended only if the original distribution of income
meets with our approval.
This initial distribution of income, or rather of money assets, did not originate in thin
air however.
It too was the necessary consequence of a market allocation of prices and production.
It was the consequence of serving the needs of previous consumers.
It was not an arbitrarily given distribution, but one that itself emerged from satisfying
consumer needs.
It too was inextricably bound up with production.
As we saw in Chapter 2, a person's presently owned property could have been ultimately
obtained in only one of the following ways.
Through personal production, voluntary exchange for a personal product, the finding and first
using of unappropriated land, or theft from a producer.
On a free market, only the first three can obtain, so that any distribution served by
producers was in itself the result of free production and exchange.
Suppose however that at some preceding time the bulk of the wealthy consumers had acquired
their property through theft and not through serving other consumers on the free market.
Does this not instill a built-in bias into the market economy, since future producers
must satisfy demands ensuing from unjust incomes?
The answer is that after the initial period, the effect of unjust incomes becomes less
and less important.
For in order to keep and increase their ill-gotten gains, the former robbers, now that a free
Every economy is established have to invest and recoup their funds so as to serve consumers
correctly.
If they are not fit for this task and their exploits in predation have certainly not trained
them for it, then entrepreneurial losses will diminish their assets and shift them to more
for Able Producers