14 - Rationality and proportionality in income distribution (1994)

Summary

What does an equitable income distribution entail? Is rationality a better benchmark than equity for income distribution? These are major questions pertinent to the theory of income distribution. My answer is that the term “equitable income distribution” is vague and smacks of a rehash of the old idea of egalitarianism, so the word “equitable” does not make as much sense as the word “rational” in this regard. This being the case, it is probably appropriate to replace “equitable income distribution” with “rational income distribution.”

What kind of income distribution can be considered as being rational? Let us start this topic from the double meanings of rational income distribution.

Double meanings of rational income distribution

The term “rational income distribution” means two things: the rationality of income per se, and the rationality of income disparity among people. These two meanings, though closely related, are different.

For instance, both Mr. A and Mr. B have taken part in market activity as production-factor suppliers with A earning n yuan and B making m yuan in return. The first meaning of rational income distribution poses the following questions: Is the distribution rational for A to make n yuan and for B to make m yuan? Should they be paid higher than n yuan and m yuan, or lower? If they should be paid higher than n yuan and m yuan, how much higher should it be for their income to be called rational?