The Institutional Organization of
Labor Markets (Income Distribution)
The theory of distribution within classical political economy is predicated upon the doctrine of three (or four) factors of production and their distributive shares. Production factors usually are grouped into labor, capital, and land, and sometimes, explicitly or implicitly, entrepreneurship (cf. Say 1964). Their distributive shares are wages, profits, and rent, respectively, as the three original sources of all revenues, with interest being part of profits and thus a derivative revenue (Smith 1939). Thus, the total product, as derived from the “united application” of labor, capital, and land, is distributed or divided among three classes (viz., landowners, capitalists (or entrepreneurs), and workers (Ricardo 1975). Determining the laws that govern distribution thus understood is for some classical economists (Ricardo 1975) the chief problem of political economy, defined as the study of the nature of wealth and the laws of its production, distribution, exchange, and consumption (Senior 1951).
Within classical political economy, the relations between production factors, especially labor and capital, involve substitution or/and competition, and thus their distributive shares (viz., wages and profits) move in opposite directions. As some classical economists (Ricardo 1975) argue, high (low) profits depend on low (high) wages to the effect that no rise in the value1 or price of labor can take place without a fall in profits. In turn, profits are seen as a “fair remuneration” for the contribution of the capitalist or/ entrepreneur, determined in the identical manner as the laborer (Senior 1951:76). And through the inequality of profits, capital and other produc-