Distribution theory as stated by Stuart Mill and Ricardo David is an economic concept that systematically attempts to account for the distribution and sharing of the national wealth among the owners of factors of production, as well as the citizens of a given nation. In essence, the key factors of production include; land, capital and labor.
Economists Mill and Ricardo clearly described how the costs of the key factors of production and the magnitude of their returns such as wages, profits and rent which are fixed. The theory of distribution comprises three distinct sets of questions to ask (Norton, 1946). First, how is the distribution of income among the various people? Second, what determines `the prices and costs of the factors of production? Third, how is the national wealth or income distributed proportionally among the various factors of production?
According to Ricardo, inequality in the distribution of wealth and income tends to be highest in poor and developing countries and reduces somehow in the course of efforts of economic development. In addition, Ricardo continues to state that some authorities tend to point at to the natural inequality human kind such as differences in ability and intelligence (Ricardo, 2013). Furthermore, the effects of social institutions such as access to education are pointed as the cause of lack of equality in the distribution of wealth in the country especially in a developing country.
On the other hand, Mill laments that economic factors, for example, scarcity of resources appeal to political ideologies such as power, the structure of the society or exploitation. According to Ricardo and Mill, economists for a long period have been pessimistic about the potential of any substantial of considerable improvement in income distribution especially of the people at the bottom. Their overall perception was that the scarcity of factors of production such as productive land as well as the inclination of population to increase faster than the approaches of substance forced limits on distributive justice.
David Ricardo in his book about the principles of political economy and taxation advocated that the owners of properties and landlords would get increased share of the national income. Whereas capitalists would receive less and less contrary to their expectations and that this set shift in the distribution in the end would lead to economic stagnation (Salvadori, 2013). At the same time, Mill foreshadowed that the workers in various sectors would be exploited to a large extent and would be made miserable. In addition, Mill said that the result of exploitation of the workers would result to the downfall of capitalism. However, other economists criticized the prediction arguing that Mill's prophesy have failed to materialize.
In the Western world, the portion of rents has diminished to a minimal percentage of the income of the national grid whereas the portion of labor has steadily increased. Economists stated that the share of labor was somehow constant (Salvadori, 2010). However, analysis reveals that the economic development is associated and accompanied by increasing allocate of labor.
The latest approaches to this concept of income distribution greatly vary. Ricardo stated that some of the approaches are exceedingly abstract and are more related to the critical study of the whole, the contemporary macroeconomics of investment and saving.
The two economists; Ricardo and Mill attempted to explain that the prices of labor, land and capital are a typical subject in economics. The whole concept sees the demand for labor, capital; and demand as derived, stalking from the demand and supply of final products (Morishima, 1989). Aside from this is the idea that a businessperson demands of labor, capital and land because he requires them in the production of goods or products he sells. Therefore, the aspect of distribution is relatively related to the wide well known theory of production that is one of the most developed subjects of economics and as such the way of thinking that synthesizes distribution and production theory is popularly known as the neoclassical theory.
Both David Ricardo and John Mill were relatively concerned about the impact that growing population would create on the economy. Ricardo argued that presence of more people would mean more land would have to be cultivated (Morishima, 1989). However, the outcome from this land would not be such constant, as the amount of capital that is available would not grow at the same rate. In reality, the factor of production, land would greatly suffer from decreasing returns. The allocation of each of those factors of production as compared to the areas of economic activity would hence, be determined by the magnitude of economic rent that could be earned at that time.
According to Mill, the laws governing the production possess a non-provisional character while the laws guiding the distribution are somehow socially constructed. This means that the social choice has the responsibility in the one than the other. In addition, Mill makes the same remarks in his system of logic. In essence, Mill seems to have had an idea that distribution could be somehow hampered with without a lot of effects on production. However, it is quite clear from his economic concepts that he underlined that the two; production and distribution were connected.
On the contrary, to Ricardo, John Stuart Mill penned his theories of distribution and wealth. According to him, the concepts of distribution are based on a triple foundation. First, is the notion that economics is viewed as a moral discipline. Second is the theory that is a custom-driven human character. Lastly, is an empirically formed conviction that the state institutions, business cooperate and education to structure the various distributions of income in the whole nation. On the grounds of these presuppositions, Mill formulated; an institutional theory which focused on human and no-human wealth distribution (Mill, 2012). Furthermore, Mill developed a more advanced institutional theory of distribution to demonstrate how the aforementioned institutions maliciously twist the distribution of income in favor of the propertied groups and to the extreme disadvantage of the people in the working class group. Therefore, social oriented economist, John Mill advocated institutional reforms deliberated to get rid with the poverty of the working class group.
On the other hand, David Ricardo political economy is one of the prime factors causing inequality of distribution of wealth in the country. He stated that the political authorities could discriminate some parts and create interest of conflicts. Ricardo was totally convinced that political economy could assist to improve and ultimately dissolve conflict of interest. Regarding the determination of the distribution of value in a given place and time, Ricardo implied, a law can be created or formulated. He argued that when a law is formulated, there would be equitable distribution of wealth and therefore everyone will be satisfied.
References
American Economic Association, & Norton, F. E. (1946). Readings in the theory of income distribution. Philadelphia: The Blakiston Co.
Mill, J. S. (2012). Principles of political economy. Nashville, Tenn.: BN Pub.
Morishima, M. (1989). Ricardo's economics: A general equilibrium theory of distribution and growth. Cambridge [England: Cambridge University Press.
Ricardo, D., & Gonner, E. C. (2013). Economic Essays by David Ricardo (Routledge Revivals). Hoboken: Taylor and Francis.
Salvadori, N. (2010). Institutional and social dynamics of growth and distribution. Cheltenham, UK: Edward Elgar.
