Rationing and the Distribution of
Not everyone does equally well under a system of
price rationing. The
system discriminates in favor of some by giving them large
amounts of goods and services, and against others to whom it
gives very little. We call the first group the rich
and the second group the poor.
People with skill and ability, luck, and willingness to
work hard do well under a system of price rationing. They
are either able to sell their labor to others for high
amounts, or produce and sell things (goods, services, or
ideas) that others value highly. Some who do well have had
the luck to inherit wealth, usually from an ancestor who had
skill, ability, and willingness to work hard. There are
others who do well because they evade the rules of the
system, using deceit and force to obtain wealth and income.
The poor, on the other hand, are those who for some reason
do not have anything to sell that others value highly.
Although income is the obvious way to measure how well
people do under a system of price rationing, it is not the
only item that matters. Some people know how to use their
money better than others. Some people can "stretch" the
dollar or "make it go a long way." People must pursue their
goals in a world of uncertainty and partial knowledge. People do better under a system of price
rationing if they can distinguish a product of high
quality from one of low quality, buy when and where prices are lower, and buy only those items
that best lead to their goals.
Interest in the extent to which a price system
discriminates for and against people extends back to the
early economists and continues today. John Stuart Mill
reflects the views of the classical economists (who were the
dominant school of economic thought for a century after
1776). In his Principles of Political Economy, first
published in 1848, he explains: "Writers on Political
Economy profess to teach, or to investigate, the nature of
Wealth, and the laws of its production and distribution."
1 Mill decided that the production and
distribution of wealth were distinct subjects, and
"[t]he distribution of wealth, therefore, depends on
the laws and customs of society." 2
Two things are worth noting at this point. First, Mill is
using the word "laws" in two distinct ways in these
quotations. In the first use, he means a regularity; in the
second, he is talking about legal requirements. Second, most
economists have decided Mill was wrong when he said that
production and distribution can be separated. Instead, they
are two sides of a single coin.
Mill spent two chapters discussing how to remedy low
wages. His final solution was in the tradition of Malthus
and Ricardo: the problem would go away if the poor had fewer
The question of poverty was at least as interesting to
Alfred Marshall. At the very beginning of his Principles
of Economics, he states that the question of whether
poverty may be extinguished "gives to economic studies their
chief and their highest interest."3 Marshall and
those who came before him had a different emphasis from that
which has dominated the second half of the twentieth
century. They had faith that economic growth was the
road to elimination of poverty. Today, there is more faith
that redistribution, that is, taking from the rich
and giving to the poor through taxation and transfers, may
be a solution. The dispute over whether growth or redistribution is the better way to help the poor is a major dividing line in contemporary politics.
A system of price rationing will distribute goods less equally than will alternative systems such as those using queuing or coupons. Many people consider this inequality a major shortcoming of a market economy, and most critics of market systems emphasize this characteristic. Defenders of market systems, on the other hand, tend to downplay rationing issues, and instead focus on the ability of a market economy to coordinate information and incentives. These are tasks that markets seem to perform very well in comparison to the ways other systems do them.
1Volume 1 (New York: The Colonial Press, 1900), p. 1.
3 Principles of
Economics, 8th ed. (New York: The Macmillian Company,
1920), p. 4.