Contents

1.1. Introduction 4

1.2. The Positive Economics of Income Distribution 6

1.2.1 The Classical School: Factor Prices and the Functional Distribution of Income 6

1.2.1.1 Wages 7

1.2.1.2 Profits 9

1.2.1.3 Rent 11

1.2.1.4 The Structure of Wages 11

1.2.1.5 The Laws of Distribution 14

1.2.1.6 The Marxian Perspective 14

1.2.2 Neoclassical Economics: The Marginalist Approach to the Distribution of Income 16

1.2.2.1 The Marginalist Revolution and Its Forerunners 16

1.2.2.2 Alfred Marshall 18

1.2.2.3 Knut Wicksell 20

1.2.2.4 General Equilibrium Theory 22

1.2.2.5 Imperfect Competition 23

1.2.2.6 Human Capital Theory 25

1.2.2.7 Risk Taking and Income Distribution 27

1.2.3 NonmarginalistApproaches 28

1.2.3.1 Statistical Approaches: The Pareto Distribution 28

1.2.3.2 Other Statistical Approaches 32

1.2.3.3 Institutional Theories of Income Distribution 34

1.2.3.4 The Role of Property Ownership and Inheritance 36

1.3. ValueJudgmentsandRedistribution 37

1.3.1 The Normative Economics of the Classical School 37

1.3.1.1 Adam Smith 38

1.3.1.2 Malthus and Ricardo on the Poor Laws 40

1.3.1.3 Mill 41

1.3.2 The Neoclassical Economists: Efficiency and Justice 43

1.3.2.1 Walras 43

1.3.2.2 Marshall 45

1.3.2.3 J.

1.3.2.4 Pareto 48

Handbook of Income Distribution, Volume 2A

ISSN 1574-0056, http://dx.doi.org/10.1016/B978-0-444-59428-0.00002-3

1.3.3 Utilitarianism and the Economics of Redistribution 49

1.3.3.1 MaximizingtheSumofUtilities 49

1.3.3.2 CritiqueofUtilitarianism 50

1.3.3.3 A Comeback for Utilitarianism 51

1.3.4 SacrificeandBenefitTheories 54

1.3.4.1 EqualSacrifice 54

1.3.4.2 The Benefit Principle of Taxation 56

1.4. Concluding Reflections 58

1.4.1 TheoryandEvidence 58

1.4.2 ThePrincipalProblemofPoliticalEconomy? 60

Acknowledgments 61

References 62