Éditorial du Mois

February, 2001

The Deserving Rich?

By Ernest Partridge
University of California, Riverside

Published in The Online Journal, February 12, 2002

The untrammeled intensification of laissez-faire capitalism and the spread of market values into all areas of life is endangering our open and democratic society. The doctrine of laissez-faire capitalism holds that the common good is best served by the uninhibited pursuit of self-interest. Unless it is tempered by the recognition of a common interest that ought to take precedence over particular interests, our present system ... is liable to break down.

George Soros
Atlantic Monthly




For a quarter century after World War II, Americans grew more prosperous and less unequal. Families in every fifth of the nation's income distribution saw their incomes double. Families in the bottom fifth actually gained income at a faster pace than those at the top. The last quarter-century is a profoundly different story. The top fifth gained while the bottom fifth lost real income. Income inequality reached record levels in the 1990s.

"Divided Decade..."
Collins, Hartman and Sklar
United for a Fair Economy, 1999


A quarter century ago, one percent of the U. S. households owned about twenty percent of the national wealth, and a typical CEO of a large corporation earned forty times as much as the average worker. Today, that one percent owns over forty percent of the national wealth, and that same typical CEO is paid four hundred times as much as his worker. One individual, Microsoft's Bill Gates, is worth more than the combined GNPs of all of Central America, excluding Mexico. (See Collins, Hartman and Sklar,  "Divided Decade: Economic Disparity at the Century's Turn," United for a Fair Economy ).

The so-called "tax reforms" of President-Select Bush are designed to further increase this income gap.

These facts compel us to ask: Do these fortunate individuals deserve this disproportionate share of the national wealth? Did these individuals alone, rather than their employees along with the rest of us, produce almost half of this wealth? Are these individuals entitled to this wealth because they are smarter, more industrious, or more virtuous? Smarter? Gates' primary talent is the ability to incorporate the ideas of others.  MS-DOS is derived from Gary Killdahl's CP/M program, and the Graphic User Interface (i.e. "Windows") along with the Mouse, came to Gates from the Xerox Corporation, via two bright kids from Silicon Gulch named Jobs and Wozniak (founders of Apple Corp.). Industrious? Gates would have virtually nothing without the labor of thousands of "micro-serfs" working for Microsoft, many of them putting in longer hours than their boss. Virtuous?  Saints and heroes are not inordinately conspicuous among the wealthy. Quite the contrary, it would seem. Some would suggest that virtue can be a hindrance to the accumulation of wealth.

Why, then, this enormous disparity of wealth? Why do the very few have such a disproportionate share of wealth, power, privilege, and political influence? Not, I submit, merely because they deserve it or have earned it all by themselves. They have all this, simply because they are able to have it – because the rest of us permit it. Wealth purchases media access, public opinion, and political power and influence which, in turn, facilitates still greater accumulation of wealth. And so, through this "positive feedback loop," the natural product of all our cooperative labor rises to "the top" and into the hands of the very few.

Conservative pundits such as Robert Novak would not hesitate to charge that this line of thinking is straight out of Das Kapital.  Perhaps. But now we diverge sharply from Karl Marx. We would not advocate a strictly egalitarian distribution of wealth, nor would we deny that the private accumulation of wealth serves society at large as an incentive toward innovation and competition, and as a source of capital investment – both of which have been proven to be essential to flourishing modern economies. As we shall argue later, a disparity of income is not only permissible, it is necessary and even just in the economy of a well-ordered society. Our complaint is not with the unequal distribution of wealth as such, it is with the scale of this inequality that we find today. Economic incentives and return on investments have served West European and Pacific Rim economies supremely well, but without the obscene disparities of income found in the United States and nowhere else in the industrialized world, with the noteworthy exception of post-communist Russia and some Middle-East monarchies (i.e., our "allies").

This inequality has not come about through the simple enterprise and hard work of the wealthy. On the contrary, wealth has bought political clout, and through this influence, a reduction of the progressive tax rates and of capital gains taxes, a weakening of the unions, an accelerations of mergers and acquisitions, and a curtailment of government regulation of commerce. In the meantime, middle-class incomes have stagnated and income of the poor has declined.

History, they say, is written by the victors. And at every stage of history, the privileged have adopted an ideology to justify their advantages. From ancient Rome well into the eighteenth century, there was the doctrine of "the divine right" of royalty. With the advent of the Enlightenment and the American and French revolutions, this would no longer do. So the Calvinists came up with the idea of "divine grace:" wealth and privilege was a sign of God's blessings upon the "elect." (And how did we know they were the "elect"? Because they were blessed with wealth and privilege, of course). Then, late in the nineteenth century, Charles Darwin posthumously came to the rescue of the privileged, as they concocted the theory of "Social Darwinism" – that wealth came to those who were most "fit" to survive the competition of the marketplace.

Today, justification for wealth and privilege comes from neo-classical economics, the reigning orthodoxy of mainstream economists and of the Republican Party and "New Democrats."  (See "The State Religion" and  "The New Alchemy")  According to this doctrine, wealth accrued "at the top" through minimally regulated free enterprise will "trickle down" to the advantage of all. "The rising tide raises all boats." Moreover, the doctrine continues, personal greed and ambition are benign forces for social improvement since, in those enduring words of Adam Smith, the individual who "intends only his own gain [is, as it were], led by an invisible hand to promote ... the public interest."

Our primary complaint against the "trickle down" and "invisible hand" theories is not that they are false, but that they are half truths. "Trickle down theory" disregards contrary advantages "percolating up" from the enterprise of a well compensated, educated and motivated labor force acknowledging a shared stake in the economy, and from the advantages of civic peace, a publicly shared conception of justice, and loyalty to a democratic political order under the rule of law. Likewise, defenders of "the invisible hand theory" are inclined to overlook the fact that there is a "back of the invisible hand" – famously labeled "The Tragedy of the Commons" by Garrett Hardin – whereby the striving of each for advantage results in ruin for all. (Cf. "On Civic Friendship," this site. We will have much more to say about "The Tragedy of the Commons" in a forthcoming essay). 

A flourishing and just economy results from a cooperative arrangement among its components: the investors, the work force, the customers and the government. To the libertarian, any taxation for purposes other than the protection of his life, liberty and property, is "theft." He thus opposes government support of the arts, scientific research, public lands, or public education. To the Marxist, any appropriation by the capitalists of the "surplus value" produced by the worker is "theft." They are both profoundly mistaken. The libertarian forgets that government investment in public institutions (the arts and sciences, education, and public lands) promotes the civic peace and loyalty that secures and enhances one's personal life, liberty and property. The well-ordered society is not a "free gift." "Taxes," as Justice Holmes remarked, "are the price we pay for civilization." On the other hand, the Marxist forgets that without the investment of the entrepreneur, including his willingness to accept risk, the worker would have no tools with which to produce the surplus wealth. Accordingly, this "surplus value" produced by the worker is justly shared by both the capitalist and the worker.

"Shared" – but in what proportion? With half to the wealthiest one percent, and the other half to all the rest – as presently extant in the United States?

The injustice of such a distribution of wealth in the United States is further exemplified by a fundamental principle of economics, taught to every student of Econ. 101, and known on reflection to all others by plain common sense: it is the principle of "the declining marginal utility of money." Shorn of its academic jargon, the principle states the obvious fact that the richer one is, the less important is the gain or loss of a constant amount of cash. (Therein lies the fallacy of Steve Forbes' "flat tax.")  The personal significance of another thousand dollars to a billionaire is inconsequential, while the same amount to a single mother on welfare is the difference between having or not having shelter and food for herself and her children. The daily fluctuations of the DOW add and subtract billions of dollars of "paper value" in the portfolios of a Bill Gates, a Warren Buffet, or a George Soros, often with these gentlemen taking little if any notice of these fluctuations. The same amounts could raise thousands of children out of poverty, or educate or provide desperately needed medical care to thousands more.

The principle of the "declining marginal utility of money," while a strong argument against the current distribution of wealth, may not suffice to justify equal distribution to each member of society, nor the Marxist formula of "from each according to his ability, to each according to his need."  For it is possible that an unequal distribution of wealth may be to the advantage of all – including the poorest members of society.

This is the contention of John Rawls's "Difference Principle."  Rawls argues that artistic, scientific and entrepreneurial talents are resources that yield benefits to a society at large, and as such should be encouraged by the incentive of extra compensation. This consideration applies also to professions such as medicine, the law, and teaching, which require the sacrifice of additional years of post-graduate training. And finally, extraordinary personal and financial risk in behalf of the common good deserves extraordinary compensation, which justifies additional compensation to some police and military personnel, and to investors. All these inequalities of distributive shares of national wealth, Rawls argues, may be justified if such distributions improve the prospects of the least advantaged. (Rawls, A Theory of Justice, Harvard, 1971).

According to the Difference Principle, it is thus arguable that extra compensation may be justifiably given to the policeman and soldier, or the doctor, lawyer, engineer and scientist, or to the teacher, and yes, to the investor and successful entrepreneur. But 400 times the income of the worker? That kind of maldistribution is difficult to justify. And present trends indicate an increase of the disparity between rich and poor, to be accelerated by Bush's "tax reforms" – i.e., a "flattening" of income tax rates, a lowering of capital gains taxes, and an elimination of inheritance taxes (which will have the additional result of curtailing the flow of funds to private foundations and charities).

Is it tolerable for 1% of the population to own half of the wealth of the nation?

Not when one out of five households has zero or negative net worth, not when a fifth of the nation's children live in poverty, not when more than forty million of our fellow citizens are without health insurance, and not when the average worker's pay and the minimum wage (in constant dollars) are declining. (All this data documented in "Divided Decade..."  see above).

Moreover, such a disparity of wealth is intolerable when urgently needed research in alternative energy sources and other environmentally benign technologies is neglected, as fellow species disappear and the warming world careens toward ecological disaster. It is intolerable when this wealth leads to the conglomeration of the media and thence a stifling of the spectrum of opinion which Jefferson held to be the lifeblood of a free society. And finally, it is intolerable when this wealth finances the elections, and thus virtually selects and purchases the services of our political leaders.

To be sure, personal wealth, and the aspiration of wealth, can be the wellspring of great benefit to society as a whole. Personal wealth encourages capital investment, a tolerance of personal and financial risk, an expression of socially valuable talents, a willingness to endure additional years of specialized education, and the private support of education, the arts and sciences, and charitable institutions.

Clearly, an unequal distribution of wealth can be a good thing. But there can be too much of a good thing.

Half of a nation's wealth in the hands of one percent of the population is too much of a good thing.

Copyright 2001 by Ernest Partridge

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