The Problematic Past, Present, and Future of Inequality Studies

Branko Milanović’s century-spanning intellectual history of inequality in economic theory reveals the ideological reasons behind the field’s resurgence in the last few decades.

Daniel Steinmetz-Jenkins in The Nation: Branko Milanović’s Visions of Inequality: From the French Revolution to the End of the Cold War is an intellectual history of how leading economists since the 18th century, from Adam Smith to Karl Marx and beyond, have thought about income distribution and inequality.

Milanović, an economics research professor at the CUNY Graduate Center, seeks to explain why studies on inequality suffered a drastic decline during the Cold War, only to return with a vengeance over the last decade or so. His answer suggests that during the Cold War, the ruling elites of both the United States and the Soviet Union sought to deny class differences under their respective regimes, in order to promote the superiority of their own ideology against their rival’s. Yet, despite the US victory in the Cold War and the collapse of the Soviet economic system, inequality has not only persisted in the West but grown in the last few decades.

This increasing disparity confounds the attempts by Cold War liberals to downplay or mask the realities of expanding economic inequality. Hence, Milanović argues, the current revival of inequality studies, to which his new book contributes.

The Nation spoke with Milanović about the role that class played in the economic thought of Smith, David Ricardo, and Marx, as well as Vilfredo Pareto’s elite theory and its relevance for today, the idea of “Cold War economics,” and the current state and future of inequality studies. This conversation has been edited for length and clarity.

Daniel Steinmetz-Jenkins: Would it be correct to say that the history that Visions of Inequality chronicles is ultimately a story about the rise and fall of class analysis in thinking about economics? All the thinkers you examine from the 18th to the 19th centuries—François Quesnay, Adam Smith, David Ricardo, Karl Marx—assumed that class was essential for understanding inequality. And as class analysis faded among professional economists in the 20th century, so did studies of economic inequality.

Branko Milanović: To some extent, yes. The class distinctions between landlords, capitalists, and workers that were a key theme for Smith, Ricardo, and Marx have become less salient in modern capitalism. Landlords have, as Marx already noticed, become just ordinary capitalists who own land. So even in the 19th century, in the most advanced countries—this needs to be underlined; it certainly did not apply to Russia and India—the class structure had become simplified. The empirical basis for the distinction between classes was the difference in levels of incomes: Owners of capital were not only, on average, better off than workers, but very few workers could aspire to have incomes like those associated with capitalists. Workers did not, in terms of income, overlap at all with owners of capital. This is no longer the case today. There are very high labor incomes, and as the results of recent work have shown, there are people at the top of the US income distribution who are among both the top 10 percent of capitalists and the top 10 percent of workers. They are both capital- and labor-rich. This is not a development that Marx could have imagined.

But two important features of class analysis do remain. First, capital incomes are still extremely concentrated among the rich. In other words, to be rich still means to have a high income from property. Financial capital is so concentrated that some 90 percent of all financial capital in the United States is owned by the top 10 percent of people. Second, there is an unbridgeable and fundamental difference between income from labor and from ownership of assets. One type of income requires constant physical and mental effort; the other does not. It is not for nothing that, in English statistics, income from capital was called “unearned income.”

Therefore, the disregard of class analysis was and is premature. While the class divisions are nowhere as sharp in modern capitalism as they used to be under “classical” capitalism, they nevertheless still exist. The fading of class analyses can thus be explained not solely by the less salient cleavage between capitalists and workers, but by political pressures to pretend that modern capitalism has entirely overcome that cleavage. This is, simply, empirically not true. And the corollary of such an ignorance of class reality was an unwillingness to study inequality seriously or to take it seriously as an economic topic.

DS: Let’s try to unpack this argument a bit more by first looking at your discussion of Karl Marx. You insist that Marx was uninterested in questions of equality, insofar as any struggle to reduce inequality would lead to mere reformism at best so long as the background institutions of capitalism remained in place. Does this mean, in theory, that once the capitalist system is overturned and replaced by just institutions, high income differentials would no longer matter?

BM: It is very difficult to interpret Marx on this point, because his writings on the future socialist society are so scant. Moreover, the scarcity of such writings is not accidental: It derives from Marx’s profound aversion to “utopian” thinkers who tried to describe such future societies. His dislike of Proudhon and Fourier can largely be seen as related to that. Marx thought that he had discovered impersonal forces of history, the logic of history, that would lead to the abolition of capitalism. It was not up to him to describe in detail the organization of the future society.

But leaving for a moment this (important) issue aside, I will try to answer your question directly: One could say that Marx would be unlikely to believe that income inequality could be high under socialism. Why? First, capital assets would be nationalized and the income from them distributed to everyone. That would obviously reduce inequality. Second, the division between intellectual and manual labor would be lessened and the wage differentials compressed. Using contemporary language, we would say that the skill premium would be reduced, not least because free schooling afforded to all would reduce the need to compensate more skilled labor for the expenses incurred during the period of studies. Third, there would be no unemployment; the state would give jobs to all. Fourth, the absence of private ownership of capital would mean that productive assets could not be transmitted across generations. Perhaps some lucky kids could inherit a nice apartment, but they could never inherit a factory or financial assets that would provide them with income without work. All of these factors, I believe Marx would say, would reduce inequality, and perhaps there would be no need to be unduly concerned with it under socialism.

His attitude, shared by many Marxists, is not dissimilar to Friedrich Hayek’s view that once the fair and just background institutions (in Hayek’s case, of a full market economy) are established, inequality becomes irrelevant. In Hayek’s world, everybody is paid by somebody for whom they have provided some good or service; in Marx’s world, everyone is a worker, and everyone is given the same opportunity. Hayek does allow for some minimum social support of the indigent—that’s where his concern with inequality, or rather with poverty, comes in—but Marx would probably answer that even that may be superfluous in a society where the state is the employer of last resort.

More here.

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