labour, capital, and land. The payment to each factor was treated as the
income of the respective social class.
Smith and Ricardo were interested in what determined the share of total
income that each class received. Their theories predicted that as society
progressed, landlords would become relatively better off and capitalists
would become relatively worse off. Karl Marx (1818–1883) had a different
theory, which predicted that as growth occurred, capitalists would
become relatively better off and workers would become relatively worse
off—until the whole capitalist system collapsed.
These nineteenth-century debates focused on the functional distribution
of income , defined as the distribution of national income among the
major factors of production. Modern economists, however, emphasize the
size distribution of income. This refers to the distribution of income
among different individuals without reference to the source of the income
or the “social class” of the individual. If we want to measure and
understand the income inequality between individuals, the size
distribution of income is the better indicator of the two because in
modern society income classes no longer coincide closely with “social”
classes. Many capitalists, such as the owners of small retail stores, have
relatively low incomes. Conversely, many wage earners, such as
professional athletes and corporate executives, have very high incomes.
Canadian Data