Distribution

Distribution, in economics, term applied to two different, but related, processes: (1) the division among the members of society, as individuals, of the national income and wealth; (2) the apportionment of the value of the output of goods among the factors or agents of production—namely, labour, land, capital, and management. The division or apportionment of this value takes the form of monetary payments, consisting of wages and salaries, rent, interest, and profit. Wages and salaries are paid to workers and managers; rent is paid for the use of land and for certain kinds of physical objects; interest is paid for the use of capital, and profit is realized by the owners of business enterprises as a reward for risk taking.

Recipients of these payments do not receive equal parts of the total. The formulation of the economic laws governing the division of the total of these payments into their various forms and relative portions constitutes the central problem of economic theory in distribution.

Economists have not agreed in formulating these economic laws. Different schools of economists have defined them differently at various times. A large body of authoritative opinion maintains that inequalities in income result, in great part, from the operation of the law of supply and demand. In this view, for example, an overproduction of cotton will result, through a consequent fall in the price of cotton, and in a decrease in the income of cotton growers. It will also tend to result in an increase in the real income, or purchasing power, of the purchasers of cotton, who can buy it more cheaply than would otherwise be possible. Similarly, when capital is abundant and the demand for it is low, interest rates tend to fall. As a result, the relative share of the national income of creditors tends to decrease, while the share of borrowers tends to rise. Variations in the relative share of the national income of workers are also explained in terms of the operation of the law of supply and demand: When labour is plentiful, wage rates tend to fall; when labour is scarce, as in wartime, wages tend to rise. And, finally, inequalities in income among workers are explained by the relative abundance or scarcity of their skills: skilled workers, less numerous than unskilled workers, receive higher wage rates; and workers with rare skills are paid at a higher rate than workers with skills found in abundance.

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Economists recognize, however, that the distribution of the national income is influenced by a number of factors in addition to the operation of supply and demand. These factors include the practice by some monopolies and cartels of creating artificial scarcities and fixing prices; collective bargaining by unions and management; and social reform legislation, such as social security and minimum wage and maximum hour laws. Such factors tend to increase the income of one group or another above the level it would reach through the unimpeded operation of the law of supply and demand. Taxation is also an important factor affecting income distribution.

In commerce, distribution refers to the physical movement of commodities into the channels of trade and industry.