The Theory of Distribution
Francis Y. Edgeworth
Quarterly Journal of Economics, February, 1904.
Distribution is the species of Exchange by which produce is divided between the parties who have
contributed to its production.1 Exchange being divided according as both, or one only, or neither of
the parties have competitors, Distribution is similarly divided. The case in which both parties have
competitors will here be first and principally considered.
The simplest type of this distributive exchange would be of a kind which is effected once for
all, without reference to a series of future productions and exchanges. For example, to adapt an
illustration used by Mr. Henry George,2 let it be supposed that on a particular occasion each out of
a number of white men hires one or more black men to assist in catching seals, on the agreement that
each white man shall give his black assistants a certain proportion of the take, the terms having been
settled in an open market in which any one white is free to bid against any other white and any one
black against any other black. A conception more appropriate to existing industry is that each white
agrees to pay in exchange for a certain amount of service a definite quantity of produce, not in
general limited to the result of a particular operation. On a particular day less seal may be taken than
the employer has agreed to give the employee for the day. In this case, even if payment is not made
till the end of the day, the employer must pay for help on a particular day in part with seal caught
on a previous day. He must pay altogether out of past accumulations when payment is made before
the work is done. When the employer agrees to pay a definite amount, he cannot expect to gain on
each day’s transaction, but on an average of days.
This example is suited to illustrate some general properties of Exchange which attach to
Distribution as a species of Exchange. Such are the laws which connect a change in the supply or
demand upon one side of the market with a change in the advantage resulting from the transaction
to the parties on either side. Thus, competition on both sides being presupposed, a decrease of supply
in a technical sense of the term on the one side is, ceteris paribus, universally attended with
detriment to the other side, but is not universally attended with detriment to the side on which the
supply is decreased. Accordingly, a limitation of supply on one side may be advantageous to that
side, though not to both sides. The case of Distribution compared with Exchange in general in
respect to such limitation of supply has only this peculiarity,—that the danger of this policy
defeating itself is in the case of Distribution specially visible and threatening. There is an evident
limit to what the black man dealing with the white man can get in exchange for a certain amount of
his service; namely, the total product which that service utilised by the white man will on an average
produce. To be sure, there is here but a case of the general principle that no one will give more for
a thing, whether article of consumption or factor of production, than the equivalent of its total utility
to him, which total diminishes as the quantity of the Commodity is reduced. But this limit is less
liable to escape attention when it is fixed by the material conditions of production rather than by the
1. This definition, if not made more specific, includes some kinds of International Trade, just as the
generic definition of International Trade includes some kinds of Distribution. See II. 5, 19.
2. Progress and Poverty, Book I. chap. iii.