In-Depth Essay

The Distribution of Wealth -- Some History

by Peter Barnes

Part Two

Income, which derives from labor and wealth, is distributed unequally in part because some types of labor are better rewarded than others, but to a great degree because income-generating wealth is concentrated in the hands of a few. An analogy might be drawn to the nuclear fission process. The top five percent of American families, who own virtually all the productive wealth, are beneficiaries of a kind of monetary chain reaction. Their wealth splits and divides and multiplies all by itself. The rest of the population owns little else but its labor, and labor deteriorates rather than multiplies in earning capacity. Every so often a lucky labor-owner accumulates a critical mass of wealth and then he, too, can enjoy a monetary chain reaction. But because they are chronically in debt, or earning barely enough to survive, few laborers come near to possessing a critical mass.

David Ricardo, John Stuart Mill, Pierre Proudhon and of course Karl Marx gave considerable thought to this phenomenon. Marx contended that the root cause of inequality under capitalism was the appropriation by capital-owners of the surplus value created by labor. Henry George came to a different conclusion: he argued that poverty persisted in America because land-owners appropriated from labor and capitalowners the fruits of material progress. Public opinion around the turn of the century, nurtured by Populist and Progressive spokesmen, generally accepted the notion that hardship for the many was at least partly attributable to the accumulation of vast fortunes by a few.

Then a curious thing happened. In the 1920s, partly as a reaction to the Progressive era and partly as a result of World War I, business became America's business, and any suspicion that some patriotic entrepreneur might be appropriating something from somebody else was considered to be in bad taste. There took hold the doctrine of the infinitely expansible pie: no sense fighting over the slices as long as the whole pie is getting bigger. The Depression of the 1930s reinforced this way of looking at the economy, though for different reasons. The prime task of the New Deal was to put people and capital to work making the pie. Production, not distribution, was the obsession, and so it remained during World War II.

Postwar liberals perpetuated this fixation on production; their great fear was that a new depression would put millions out of work. Except for rarae aves like Leon Keyserling, who argued that equitable income distribution was a prerequisite of stable growth, most liberal economists were content to jiggle the levers of fiscal and monetary policy, letting income trickle down as it might. Public debate centered around such short-range dilemmas as whether to raise aggregate taxes or lower them, loosen the money supply or tighten it. The distribution of wealth was accepted as an unalterable given. By 1958 John Kenneth Galbraith was able to proclaim in The Affluent Society:

"It has become evident to conservatives and liberals alike that increasing aggregate output is an alternative to redistribution or even to the reduction of inequality. .The oldest and most agitated of social issues, if not resolved, is at least largely in abeyance, and the disputants have concentrated their attention, instead, on the goal of increased productivity."

Given an intellectual consensus that the distribution of wealth was a dead issue, it's not surprising that a number of myths -- many inherited from previous decades -- took hold. Among the most popular were: profits are good for the poor; hard work can still get you rich; the poor are poor because they won't work hard or can't; by spending more on education the government can promote economic equality; widespread stock ownership has created a true "people's capitalism"; antitrust laws are a barrier to excessive concentration of wealth.

End of Part Two.

This essay is part of a series written by Peter Barnes for The New Republic magazine in 1971-72. We think you'll be pleased -- and perhaps shocked -- to see how timely and insightful the essays are for today. Each essay will be republished, in installments, by The Progress Report.