[[link removed]]

PORTSIDE CULTURE

INEQUALITY WITHOUT CLASS  
[[link removed]]


 

Simon Torracinta
April 5, 2024
Dissent
[[link removed]]

*
[[link removed]]
*
[[link removed]]
*
*
[[link removed]]

_ This book surveys how leading economists, over the last two and a
half centuries, have accounted for wealth and income inequality. _

,

 

_Visions of Inequality
From the French Revolution to the End of the Cold War_
Branko Milanovic
Belknap Press
ISBN: 9780674264144

An academic journal article on the technicalities of tax data is not
usually cause for much excitement. Yet at the end of last year, one
such publication in the _Journal of Political Economy _set
#EconTwitter afire with debate, and prompted a full column in the
_Economist_. The paper, by Gerald Auten and David Splinter, took aim
at the famous studies on rising inequality conducted by Thomas
Piketty, Emmanuel Saez, and Gabriel Zucman. If one employs different
assumptions, Auten and Splinter argued, post-tax income inequality in
the United States appears not to have risen much since the 1960s.
While Piketty and his collaborators systematically challenged the
findings, their detractors were quick to the draw. “The Piketty and
Saez work is careless and politically motivated,” sniped James
Heckman, a Nobel-winning Chicago School econometrician.

Whether it has risen in recent decades or merely plateaued, income and
wealth inequality in the United States remains staggering. But the
recent controversy illustrates the high stakes of empirical research
on the subject, which burst into public view in 2014 with the
publication of Piketty’s _Capital in the Twenty-First Century_.
While it is hard to imagine the Biden administration’s announcement
of a “new Washington consensus” centered on the “challenge of
inequality” and its push for a global minimum tax without the shock
wave of the 2016 election, Piketty’s high-profile work supplied a
ready explanation for what had gone wrong.

The economist Branko Milanovic made his own major contribution to the
study of inequality in 2016 with his breakout _Global Inequality_. His
foremost finding was the “elephant curve”—a graph of income
trends worldwide since 1988 that showed significant gains for the
“emerging global middle class” as well as the rich, while incomes
for the very poorest and the “lower middle class of the rich
world” had stagnated. In a decade that saw one populist uprising
after another among those left behind by globalization, the chart
achieved totemic status.

In his latest book, _Visions of Inequality_, Milanovic steps back to
question the study of inequality itself. Where does this work come
from? Was inequality always so central a preoccupation for
economists—or in politics at large? Ultimately, the book reveals the
limits of a purely economic framing of these questions.

Born and educated in then-Yugoslavian Belgrade, an economist at the
World Bank for almost twenty years, and now a senior scholar at the
CUNY Graduate Center, Milanovic cuts an unusual figure in his field.
His training in comparative economics and years in applied research
have inculcated a distaste for the crystalline abstractions,
theoretical aridity, and ideological policing of the neoclassical
mainstream. His years of spadework in the World Bank trenches,
alongside an erudition unusual in the profession, bring a refreshingly
historical and cosmopolitan depth to Milanovic’s writing. Experience
of the twilight of state socialism and the subsequent violent
transition in Eastern Europe have likewise shaped his jaded political
outlook, evident in the title of his previous book, _Capitalism,
Alone_ (2019). The stark lesson of 1989—“there is no
alternative”—endures, but merely as a forlorn shrug.

All these qualities appear in _Visions of Inequality_, a breezy _tour
d’horizon_ of economic conceptions of inequality since the
Enlightenment. Milanovic showcases six economists who, in his view,
contributed most substantially to this domain: François Quesnay, Adam
Smith, David Ricardo, Karl Marx, Vilfredo Pareto, and Simon Kuznets.
Their work shares three important qualities: “a narrative of what
drives inequality,” an “outline of the relationships between
relevant variables,” and “empirical ‘verification’ of the
theoretical and narrative claims.” Chapters on each thinker are
followed by an extended rumination on this tradition’s fall into
abeyance during the Cold War, and a very brief epilogue on its revival
after 2008.

Milanovic takes a mercenary approach to his chosen canon: after
capsule summaries of each economist’s outlook and career, he
narrowly focuses on their approach to income and wealth inequality,
however marginal these ideas may be to their work overall. Still,
Milanovic declares that “we cannot thus speak of inequality in
general or abstract terms; we can only speak of specific features of
each inequality.” While occasionally failing to live up to this
maxim, he is a perceptive reader of past economists and the literature
that surrounds them. He is unabashedly Whiggish, however, when it
comes to the steady accumulation of better and greater income data for
both past and present, and he uses this data to reconstruct prevailing
levels of inequality in the lifetimes of his chosen thinkers. This
context is enlightening and occasionally startling: England’s Gini
coefficient in 1867, the year Marx published Volume One of _Capital_,
was roughly that of modern Zambia, while today’s South Africa is
more unequal still.

Reflections on the divide between rich and poor are as old as
political thought itself. Yet systematic, empirical investigation of
economic inequality only emerged in the eighteenth century. Breaking
with the mercantilist emphasis on the wealth of the state, political
economists beginning with the French physiocrats identified national
prosperity with the population as a whole. Or as Adam Smith would
later put it, in what Milanovic stresses was a Copernican shift in
perspective: “The high price of labor is to be considered not merely
as the proof of the general opulence of society which can afford to
pay well all those whom it employs; it is to be regarded as what
constitutes the very essence of public opulence, or as the very thing
in which public opulence properly consists.” The wealth of a nation,
in other words, ought to be measured in the incomes of its poorest
members. With this theoretical turn came an empirical one: political
economists began to construct income tables for all of society, as
Quesnay did in 1758. Despite their meager data sources, Milanovic
credits this work for closely matching more recent estimates of past
income distribution.

The early political economists, however, were rarely interested in
interpersonal income and wealth inequality as such. For much of the
eighteenth century, the word “inequality” continued to evoke the
inequality of status from birth characteristic of the _ancien
régime_. The social classes of the period were closely associated
with distinct types of income: labor, capital, and rent. In the
century between Smith and Marx, economists derived the famous
tripartite class structure of workers, capitalists, and landlords from
these “factor shares” of production—even as they freely
acknowledged many other intermediary classes. These categories formed
the building blocks of their theories, with economic inequality
figuring only as the functional outcome of this class structure.

Class also allowed political economists to extrapolate the long-term
trend in inequality from a simple model. Adam Smith, for instance,
argued that growth was positively correlated with high wages and low
interest rates, and inversely correlated with the rate of profit:
“The rate of profit does not, like rent and wages, rise with the
prosperity and fall with the declension of the society,” he declared
in the _Wealth of Nations_ in 1776. “On the contrary, it is
naturally low in rich, and high in poor countries, and it is always
highest in the countries which are going fastest to ruin.” A
flourishing commercial society would benefit workers and landlords at
the expense of capitalists, whose profits would decline over time. By
allying to prevent collusion or monopoly that would artificially
inflate the profit rate, workers and rentiers could reduce overall
inequality in the long run, even if a few mega-rich landowners
remained.

Forty years later, writing at the crest of the industrial revolution,
David Ricardo took a far more sanguine view of profits. (Milanovic
estimates that, perhaps not incidentally, the wealth Ricardo
accumulated on the stock market easily placed him in the top 1 percent
of the English population and likely made him the single richest
economist ever.) Profits generated savings and therefore investment,
which made them central to growth. Tariffs on food imports under the
English Corn Laws, which Ricardo fought for decades to overturn,
served to raise food prices and so drive up the subsistence wage of
workers, thereby driving down profits. If the Corn Laws were repealed,
England could expect additional growth and lower inequality, marked by
converging incomes from capital and rent; if they were maintained,
England faced an increasingly stagnant and unequal economy, with rich
landlords dominating impoverished capitalists. Yet even though he
directly correlated growth with lower interpersonal inequality,
Ricardo’s scenarios were hardly auspicious for workers, whose wages
were fixed at subsistence levels by default in either case.

As the industrial working class swelled over the course of the
nineteenth century, Ricardo’s prognosis looked increasingly
bleak—which was hardly lost on his most incisive reader, Karl Marx.
Yet contrary to popular perception, especially regarding the notorious
thesis of “immiseration” embraced by some later Marxists, Marx’s
model of inequality in_ Capital _was, as Milanovic puts it, “much
brighter than normally assumed.” Whatever its implications for
capitalism’s long-term health, his famous theorization of the
tendency of the rate of profit to fall (a view he shared with Smith)
also implied _decreasing _inequality. Falling profits meant decreasing
total income from both capital and rent, especially when placed
alongside the potential of real wages to rise with growth. But against
these tendencies ran many countervailing forces—such as the periodic
crises and economic expansions that could drive up the rate of profit,
or the “reserve army of labor” that depressed wages. The result,
in Milanovic’s view, is a surprisingly flexible model that
encompasses the wide varieties of capitalism we observe today.

It was precisely as inequality reached new heights and socialist
parties emerged in Europe that economists moved away from class
analysis of inequality. The _coup de grâce_ came from the Italian
economist Vilfredo Pareto, a mathematically inclined engineer
implacably opposed to the rising tide of socialism. Building on the
reams of granular data produced by the spread of mass taxation, Pareto
reconceptualized inequality as an interpersonal (or, more precisely,
inter-household) phenomenon. Ever since, economists studying
inequality have foregone class structures in favor of income
distribution alone.

Equally significantly, Pareto claimed to have detected a regular
pattern underlying this distribution. The curve of the distribution,
he suggested, is governed by the same coefficient across all times and
places. Milanovic points out that all of Pareto’s chosen
examples—including German states, Swiss cantons, and Italian
cities—shared a similar political and institutional framework, and
that Pareto’s own data was far more variable than he implied. A
simple glance at modern country data, Milanovic adds, discredits any
claim for immutability. Yet Pareto was unequivocal, pronouncing in
1896 that “we find ourselves here in the presence of a natural
law.” On this account, unequal income distribution was a built-in
property of all societies, attributable to some feature of human
nature, and any socialist takeover would merely swap out one elite for
another.

The dramatic inequality of the Belle Époque seemed to augur a final
confrontation over the “social question.” But by the mid-twentieth
century, a world-historical reversal appeared to be underway. In the
United States, income inequality, which had plateaued at an all-time
high in the 1860s, began to decrease by the 1930s—a trend that began
even earlier in Western Europe. What happened?

With the history of the United States firmly in mind, the wide-ranging
economist Simon Kuznets—a pioneer of the national income accounts
now used to calculate GDP—put forward a “hypothesis” on
inequality in 1955: “widening in the early phases of economic growth
when the transition from the pre-industrial civilization was most
rapid; becoming stabilized for a while; and then narrowing in the
later phases.” In this model, rising inequality characterized early
industrialization as a gap opened between urban and rural incomes,
followed by more stratified urban incomes. Over time, the same
processes would work to moderate inequality by reducing rural
employment, narrowing differences in the productivity of agricultural
and non-agricultural sectors, lowering the rate of return due to
greater capital abundance, and increasing the use of social surpluses
to fund redistributive programs. Plotted over time, the measure of
inequality resembled an inverted U. The Kuznets curve implied a
universal trajectory for all societies. It resonated deeply with the
linear narratives of modernization popular in the postwar period,
gaining wide acceptance despite serious doubts about how well it fit
the data.

For Milanovic, Kuznets’s work marked the end of a centuries-long
dialogue within economics. The “Cold War economics” that
subsequently dominated the profession in the second half of the
twentieth century, he charges, fell pathetically short of what came
before. The Cold War itself was premised on fierce ideological clashes
over the basic structure of society, yet it was precisely then that
substantial study of inequality suddenly disappeared. How can this be?
Several explanations are advanced in the longest and most probing
chapter of the book.

In the capitalist world, Milanovic argues, trends in income
distribution made economists complacent about decreasing inequality,
while ideological confrontation militated against emphasis on the
significance of class in the West. Additionally, the neoclassical
paradigm centered on analysis of equilibrium conditions between
diverse economic agents whose unequal “endowments”—of capital,
resources, skills—were simply taken as given; discussion of that
original divergence was _a priori _out of scope. As Milanovic
dismissively concludes, neoclassical models of distribution related
“to life on Earth about as much as the theories that astrobiologists
have developed about life on Mars.” This retreat from inequality was
equally visible in macroeconomics: while the classical political
economists were convinced that returns to labor and capital changed
over time, from the 1960s economists swept away such claims altogether
with the largely arbitrary assumption that “factor shares” did not
change over the long run—which implied a mostly static income
distribution. Even in development economics, where attention to
differing wage levels came with the territory, the Kuznets hypothesis
instilled the basic idea that growth would take care of inequality.

Over time this complacent neglect curdled into outright hostility to
the study of inequality. As late as 2004, Nobel laureate economist
Robert Lucas Jr. declared that “of the tendencies that are harmful
to sound economics, the most seductive, and . . . the most poisonous,
is to focus on questions of distribution.” Attention to inequality
was relegated to the margins, surviving in the pure empirics of
econometrics, for instance, and in dependency theorists’ scrutiny of
inequality between the core and periphery of the world-system.

The field was equally barren to the east. The state-socialist emphasis
on the supposed abolition of class and tight official control over
economic data made the empirical study of income distribution
difficult—so much so that retrospective estimates remain challenging
to this day. In Milanovic’s view, what little data is available
suggests a surprising degree of inequality in countries like the
Soviet Union (albeit lower than in the capitalist world), since levels
of the party hierarchy were strongly correlated with income in both
cash and kind. “All conditions being the same,” Milanovic writes,
“the more hierarchical the planned economy, the greater the overall
interpersonal inequality,” with the Stalinist economy of the 1930s
standing as the starkest example. In any case, interpersonal
inequality mattered little within the official Marxist line: income
differentials were perfectly compatible with a classless society that
had eliminated private property.

In a second reversal during the 1980s, income inequality began to
climb once again across the West, defying the Kuznets curve. This
unexpected development pushed economists to apply new theoretical
frameworks to a wealth of data from household surveys and tax
authorities, alongside more sophisticated reconstructions of incomes
in the distant past. It also laid the basis for a revolution in the
study of economic inequality.

The field has found a massive audience in the aftermath of the global
financial crisis, catapulting its stylized facts (“We are the 99
percent!”) into the political arena. Yet _Visions of Inequality_,
perhaps despite itself, also reveals what remains lost. For all their
differences, both Smith and Marx insisted on the fundamental role of
power in the determination of inequality. It could not be otherwise
when income shares were tightly bound to the hierarchical structure of
society itself. Contemporary scholars of inequality, by contrast,
rightly point to the unprecedented convergence of high labor _and
_capital incomes in the very same individuals (what Milanovic calls
“homoploutia”). But far from making class irrelevant, such
developments transform class, in ways yet to be fully analyzed or
understood. As the global class structure has been remade by the
growth of a cosmopolitan elite, low-wage service work in the Global
North, and the massive informal sectors of the Global South,
economists have had strikingly little to contribute beyond the merely
observational.

The major contribution of Milanovic’s _Global Inequality_ was to
revise the Kuznets hypothesis to account for rising inequality since
the 1980s. Whereas Piketty concluded that the more equal mid-twentieth
century may simply have been a world-historical aberration, Milanovic
suggested that, seen in the _longue durée_, there may be no single
U-curve at all, but only wavelike oscillations of rising and falling
inequality. Fundamental technological and economic
developments—industrialization, globalization, the rise of
services—push up economic inequality at key junctures, but these
trends intersect with dramatic historical turning points (war,
revolution), as well as more gradual institutional transformations in
reaction to inequality itself. It is therefore the “interplay
between, on the one hand . . . apparently determinative economic
forces, and, on the other hand, political and social forces, that
shapes the movement of Kuznets waves.”

Milanovic’s revision, which evokes the perpetual seesawing between
market and society in Karl Polanyi’s _The Great Transformation_,
rescues the Kuznets hypothesis from its obvious incompatibility with
the empirical record. But it only does so by introducing a fundamental
indeterminacy to the very heart of the model. The vagueness of
Milanovic’s formulations about “political and social forces”
gestures to a missing theory of power and politics—a problem that
inspired Piketty’s assay of institutional and ideological
legitimations of inequality in _Capital and Ideology _(2020). To grasp
where inequality is headed—much less to change it—we will need to
go beyond the economic altogether.

SIMON TORRACINTA is a lecturer in history of science at Harvard
University and a contributing editor at the _Boston Review_.

* political economy
[[link removed]]
* capitalism
[[link removed]]
* Inequality
[[link removed]]
* wealth inequality
[[link removed]]
* economics
[[link removed]]

*
[[link removed]]
*
[[link removed]]
*
*
[[link removed]]

 

 

 

INTERPRET THE WORLD AND CHANGE IT

 

 

Submit via web
[[link removed]]

Submit via email
Frequently asked questions
[[link removed]]
Manage subscription
[[link removed]]
Visit portside.org
[[link removed]]

Twitter [[link removed]]

Facebook [[link removed]]

 



########################################################################

[link removed]

To unsubscribe from the xxxxxx list, click the following link:
[link removed]