ABSTRACT
We will conclude this volume by a re-consideration of the possible clash between economic efficiency and the desired distribution of welfare which we examined at length in Volume I in the case of a Stationary Economy (cf. The Stationary Economy, Chapter XII). We there stressed the double function of the price mechanism in a perfectly competitive private-enterprise economy. We showed how, with factors being paid rewards equal to the values of their marginal products and with factors moving freely into those uses in which their rewards were highest, one would achieve a state of economic efficiency in which it was impossible to make any one citizen better off without making at least one other citizen worse off. But we stressed the fact that the price mechanism, in addition to fulfilling this signalling role of beckoning resources from less to more productive uses, would also determine the distribution of the national income among the individual owners of the factors of production, each citizen receiving an income equal to the market rewards of the factors which he happened to own. Thus the resulting system, while it would be economically efficient, might result in an undesirable distribution of income. Governmental action might be desired in order to affect the distribution of income without impairing the efficiency of the system—that is to say in order to give more to Mrs A at the minimum reduction of income for Mrs B.
