In-Depth Essay

The Maldistribution of Wealth

by Peter Barnes

Part Three -- Conclusion

President John F. Kennedy believed the economic wellbeing of workers would be improved by granting tax breaks to capital-owners; whence the investment tax credit and other tax changes that did help stimulate growth but also distributed income upward rather than downward. Sargent Shriver believed that poverty could be eradicated by helping the poor overcome their personal inadequacies. He stated last year: "This program [the War on Poverty] was conceived of as a program not to distribute welfare, not to give handouts to people, but to give them the capacity to get themselves out of poverty. . . . The object was to transform the poor people themselves so that they became . . able to stand on their own feet and earn their own living." Building on that philosophy, the poverty program emphasized early childhood education, vocational training and legal services. It was never a war on inequality of wealth or income, only on unequal access to the lowest paying jobs. Its principal beneficiaries, some have argued, were not the poor but the bureaucrats and social scientists who ministered to them, and the capital-owners (ITT, Litton Industries, RCA, et. al.) who won the anti-poverty government contracts. The same could be said of urban renewal: its major beneficiaries were not slum dwellers but land-owners and real estate developers.

Perhaps the most revered belief of liberals was that education could be an economic leveler. While it is true that education has helped many to improve their economic status (myself not excluded), it is a logical fallacy to conclude that education can uplift everyone simultaneously. the labor market rewards those who are better educated than their fellows, not simply those who are educated. If large numbers of people get educated, as has happened in America since World War II, the result is better educated steel workers, journalists and dropouts — not a more equitable distribution of income or wealth. Education is, in itself, a good thing, but it's not an economic leveler.

This leads us back to our original question: why, despite prolonged prosperity and massive public investments in education, job training, etc., does our economy continue to distribute inequitably what it produces? The underlying causes of economic inequality, it seems to me, are related to the different derivations of income, their characteristics and manner of distribution. Of the two fundamental sources of income in America—labor and wealth—the latter is by far superior. Think for a moment of the advantages of wealth. It is not subject to old age, illness and other human frailties. It can reproduce itself in five or 10 years (most corporate capital returns about 20 percent on equity before taxes) and even gets a subsidy, in the form of depreciation allowances, for doing so. It can reap profit from the efforts of others, whereas labor can only earn for itself. Through capitalization of anticipated gains, it can get paid for today and tomorrow, while labor gets paid only for today. It is inherently organized, whereas labor must struggle, often unsuccessfully, for the equivalent organizational strength. It has the upper hand in the marketplace, and, more often than not, first claim on government favors. And it has the one kind of power that really counts in America: the power to pass on to others (i.e., workers) the costs that others are trying to shift to you. (The efficiency with which corporations can pass on higher wages and corporate income taxes has long been a subject for debate among economists. It is probably extremely high in oligopolistic industries, lower in more competitive industries.)

These advantages would be of little consequence were wealth as widely distributed as is labor. But this is not the case. Our economy has long remained such that the inferior source of income is spread among the many, while the superior source is concentrated among the few.

What we are left with is a diagnosis of the American economy that is not far from that made by the classical economists. Productive capacity steadily (sometimes not so steadily) grows, but the fruits of increased production are not equitably shared. These fruits have been, and continue to be, appropriated in disproportionate degree by a small minority. This minority may not consist solely of Marx's capitalists or George's land-owners, but it is a minority nonetheless. Its members are essentially the owners of productive wealth. Any genuine remedy for economic inequality in America must come to terms with that reality.

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.