2.5 How Revenue Is Distributed Amongst Society
For each man, his revenue is the result of his productivity, which is in turn the result of his capabilities and the resources at his disposal. As men have different capabilities and resources, so they will have different levels of productivity, and so they have different levels of revenue.
Productivity requires not merely that action be taken, but that it be taken upon resources: land and capital. Those who are possessed of resources have the means to take action to be productive, but where they lack the ability to take action to the fullest degree, they become employers. Those who have the ability to take action but lack the means become employees.
Likewise, those who have the resources to produce a thing become manufacturers and those who lack the resources become consumers - but this is only in terms of a specific product. Those who consume a product acquire it by offering in exchange other things they have produced - so both parties are producer and consumer, but of different things.
The cost of producing an item is repaid by the revenue of selling it. It is often also financed in advance by investors who expect a return of their capital plus interest when the product is sold. This expense, and other expenses that are peripheral to manufacture, must also be repaid by the revenue from goods sold.
The manufacturer of an item serves as a broker between his customers and his laborers. He is tasked with negotiating a price for the product of his whole workforce to the body of all consumers, and he is likewise tasked with apportioning the revenue from the sale of product to those who have contributed to its manufacture and conveyance.
(EN: It occurs to me that this may be the rationale behind the value-added tax on manufacturing charged by European governments in the modern day. It is an attempt to apportion the proceeds of sale to each act in which the value of the item is created. The American system of an equal tax on all manufacturers is essentially similar, though not as precisely apportioned.)
Say traces the value-chain of the production of a watch - from the mining of the ore that will become the metal to its fashioning and assembly through various stages. At each step along the way, labor is applied to transform and transport the material. Each party involved is thus compensated, from the proceeds of the sale of the finished watch, for their contribution. The number of individuals involved is considerable, "much more numerous than I have described or than is generally imagined."
In this context, Say presents an odd notion - that the income of producers is borrowed at interest from the consumer who purchases the item. He observes that, even before the product is "perfected for use" the majority of the individuals involved in its production have been compensated for their contribution - in that way they are borrowing from the revenue of its final sale and repay the value they have received when they purchase the item.
(EN: I'm not sure if I can agree - to my way of thinking, the consumers have borrowed from the investors who pay for the production of a wanted item, and the interest is a component of the price of that item. You can construct the equation otherwise, but my sense is that the chronology of actual events as well as the consideration of which party receives the interest favors my interpretation over Say's.)
The distribution of revenue in a community is an aggregation of the same causes: the apportioning of revenue to those who contribute to production, more or less according to the degree to which they contribute. Some specific considerations:
- The portion of value that is attributable to natural resources, such as land, is reflected in the rent paid to the owner of the land.
- The portion of value attributed to the activities of production is paid to those who perform those activities, in the form of wages
- The portion attributable to capital resources, such as equipment is paid to the manufacturer as a return on his investment
- The portion attributable to financial resources, money loaned to facilitate production, is paid to the lender as interest.
Thus considered, each contributor to a productive act receives payment that represents its share in the value delivered to the consumer.
(EN: An interesting approach, but likely there are other roles not considered. Those who transport goods to market, or who broker deals with wholesalers, or perform other necessary tasks are also compensated. One could also view taxation as the collection of government for its support by providing roads, courts, and other resources essential to production - though in this instance it is taken rather than granted and the amount is not negotiated.)
Say observes a few differences in the timing (before or after the sale), the frequency (small amounts often or large sums occasionally), and the way in which they dispose of it (do they consume it immediately or reinvest it), which may also impact their individual wealth, though he seems to come to no firm conclusion except that it affects their wealth at any given moment.
Return briefly to the opening example, a man on an isolated farm, who profits by his own labor because he consumes his own crop. The situation of the same man in a crowded industrial town is no different: his income is the result of his own contribution to the pool of goods created in the community, and he consumes as a result of his production.
(EN: Scanning ahead, I think Say misses a critical distinction entirely: the farmer in isolation can hardly dispute that he is rewarded for his own effort because he has no more or less than he created himself. In a social setting, this reward is portioned, and subject not to fact but to negotiation - he may receive more or less value than he produced. Complaints about fairness in apportioning of goods are the topic of much debate in politics and in the workplace - too much to consider at length here, but it does provide a framework for consideration.)
The notion of profit seems problematic: can a man be said to have profited nothing if he spends all of his wages or consumes all of his crop? In such instances, he has consumed only that which he has produced, and produced it for the purpose of consumption. And even where he consumes less than he produces at present, the savings he may accumulate will eventually be spent on consumption.
The notion of profit - where the value of revenue exceeds the expenses of generating it, would seem to apply only to the individual situation of each separate party in an act of industry. In aggregate, all goods that are produced are enjoyed, and the benefit is never more than the effort. The total value of goods produced in a community is shared among the members of the community.
Even in instances where goods are exported or imported, an equal amount is given for them in trade. Every good or coin that departs a nation is replaced by something of equal value in return. Where a nation consumes its goods and its trading partner keeps its coin, neither has lost: one has the benefit of present consumption, the other of future consumption.
Say also broadens is scope: what if we were to consider all of mankind as one vast nation? It becomes apparent, then, that the distinction of one country from another is entirely arbitrary, and the bickering among them quite pointless. Each person in the word consumes what he produces, and trades his product with others to consume other things of equal value.
He returns briefly to the use of money as a measure of value, and to some of the principles he earlier considered that render it a poor method of measurement: goods are traded for goods an money is a token of exchange, with negligible effect on the value given or received. Money, like any durable item, is also capable of maintaining value over time - the person who collects it trades their present benefit for their future benefit in equal measure, or voluntarily bears the risk of fluctuation.
As such, money does not form a portion of revenue or a portion of wealth. A man has money because he has earned it by production and spends money to obtain the production of others. It is the productive capabilities, rather than the amount of a commodity, that provides for the present and future prosperity of a nation.
There's a temporary distraction on the matter of property that may be re-consumed. The example given is of books, which can be consumed by one person then handed to another with no additional revenue for the producer. I'm not clear on Say's point in this - he doesn't seem to be advocating any kind of change - and the same is generally true of any durable good that may be passed on from one to another when the original purchaser has no further use of it.
The same is true of any immaterial product: if a merchant has received paid advice from an attorney and shares that advice with a fellow merchant, the attorney is not paid a second time. Arguably, he has not engaged in a second act of production, and should not expect to be. (EN: There is likely more to this argument in the present age, where technology facilitates copying of intellectual property - a book may be photocopied, a performance recorded, a film transferred digitally. I don't expect Say has much to offer in this regard.)