INTRODUCTION
Theories of the distribution of income between individuals and classes in society have been advanced in the literature of economics from before Adam Smith to the present day. Nevertheless, although David Ricardo in the preface to his Principles of Political Economy and Taxation (1817; 1951, p.
5) said that the determination of the laws of distribution was “the principal problem in Political Economy,” the field has at times led a somewhat modest existence on the outskirts of mainstream academic research. One of the reasons for this may have been that the study of income distribution is so tied up with normative issues of equity and justice that many economists, keen to pursue a value-free version of their subject, have tended to shy away from it. Others, however, have found this connection to be a particularly attractive feature of the field and have risen to the challenge of clarifying the distinction between the positive and normative aspects of the analysis of income distribution, in other words, separating explanation from justification. Both aspects of the study of income distribution are reflected in this chapter, which covers the positive theory of income distribution as well as the attempts that have been made to evaluate the distribution of income from the point of view of justice and equity. The development of normative theories of income distribution is intimately tied up with the analysis of redistributive policies, which in addition also have to take account of the positive analysis of income distribution. This chapter focuses on theories of income distribution, while no attempt has been made to cover the large empirical literature in the area, including the statistics of income distribution. Some thoughts on the relationship between theory and empirical work in the area are presented in Section 1.4.Taking this broad view of the field of income distribution, the literature that is relevant for this chapter becomes so large that its history cannot possibly be covered in its entirety.
This is especially so because many economic theories—in areas like international trade, public finance, labor, economic growth, and so on—have implications for income distribution, although the distributive aspects are not the main concern of the researchers involved. The treatment must therefore by necessity be selective, with main emphasis on the contributions of the most important and influential economists among those who have been concerned with the theory of income distribution.For this reason as well as for reasons of space, this chapter does not by any means attempt a complete coverage of the literature. For further references and more detailed treatment, there are fortunately a number of other sources that the reader may consult and that offer complementary perspectives on the field. They include classics like Cannan (1893, 1914) and Dalton (1920) and a number of more recent surveys like Atkinson (1975), Sahota (1978), Ranadive (1978), Asimakopulos (1987), Atkinson and Bourguignon (2000), and Goldfarb and Leonard (2005). Although not all of these have their main attention on the history of thought, they include a lot of relevant historical material. The same is true of Ravallion’s contribution to this Handbook.
All accounts of the history of thought face two fundamental questions: When to begin and when to stop. In this chapter, I have decided to start with Adam Smith, as he is arguably the first economist in whose work we begin to see the contours of modern theories. The line at the other end is drawn where the literature is still being regarded as part of the contemporary set of references. This cannot be located with a great deal of precision but has been drawn roughly at some time in the 1970s.
The chapter is divided into two main parts. Following Section 1.1, Part 2 is concerned with positive theories of income distribution, whereas Part 3 covers value judgments and redistribution; in addition, a short Part 4 contains some concluding observations. This division means that the treatment of some economists has been split in two, e.g., Pareto is discussed first in the context of the debate over Pareto’s law and second in relation to his contribution to welfare economics. Although this may in some respects be unfortunate, it should be kept in mind that the main purpose here is not to give well-rounded pictures of individual economists but rather to trace the development of thought within the main areas of income distribution theory. A broader treatment of the history of economic thought, including biographical sketches of the lives of the more important economists, has been given in Sandmo (2011).
1.2.
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