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Conceptualizing CapitalismInstitutions, Evolution, Future$

Geoffrey M. Hodgson

Print publication date: 2015

Print ISBN-13: 9780226168005

Published to Chicago Scholarship Online: January 2016

DOI: 10.7208/chicago/9780226168142.001.0001

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Addressing Inequality

Addressing Inequality

(p.352) Chapter Fifteen Addressing Inequality
Conceptualizing Capitalism

Geoffrey M. Hodgson

University of Chicago Press

Abstract and Keywords

This chapter addresses inequality, including possible types of exploitation within capitalism and factor asymmetries between labor and capital. One asymmetry, noted by Alfred Marshal among others, is that labor (unlike capital) is inseparable from its owner. An additional and neglected asymmetry is that labor under capitalism (unlike capital) cannot be used to obtain collateral. This is an important ongoing source of inequality within capitalism. By contrast, markets and globalization are not necessarily sources of inequality. Some proposals for dealing with the problem of inequality are briefly reviewed.

Keywords:   inequalities, income and wealth, sources of inequality, factor asymmetry, exploitation, collateralizability, policies, basic income, wealth taxes, Thomas Paine

The contrast of affluence and wretchedness continually meeting and offending the eye, is like dead and living bodies chained together.

Thomas Paine (1797)

We can accept the outcome of a competitive process as fair only when the participants have equality in basic capabilities; the fact that no one is allowed to have a head start does not make the race fair if some contestants have only one leg.

Ha-Joon Chang (2010)

At least nominally, capitalism embodies and sustains an Enlightenment agenda of freedom and equality. Typically, there is freedom to trade and equality under the law, meaning that most adults—rich or poor—are formally subject to the same legal rules. But, with its inequalities of power and wealth, capitalism darkens this legal equivalence. As Anatole France (1894) noted ironically: “The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.” But this does not mean that legal equality is unreal or unimportant. On the contrary, legal systems enshrining such equality have been beacons of prosperity.

Evidence gathered by Richard Wilkinson and Kate Pickett (2009) shows multiple deleterious effects of inequalities of income and wealth. Using data from twenty-three developed countries and from the separate states of the United States, they observed negative correlations between inequality and physical health, mental health, education, child well-being, social mobility, trust, and community life. They also found positive correlations between inequality and drug abuse, imprisonment, obesity, violence, and teenage pregnancies. They suggested, but did not establish in detail, that inequality creates adverse outcomes through psychosocial stresses generated through interactions in an unequal society.

(p.353) A massive literature—too extensive to review here—examines the relationship between inequality and economic performance (Galbraith and Berner 2001). Some argue that inequality is a necessary foundation for capital accumulation. But Robert J. Barro (2000) found that, after introducing controls for education, fertility, and investment, there is no significant correlation between inequality and economic growth. While some inequality provides high-powered incentives for entrepreneurs and other highfliers, an unequal society also wastes the talent of many on middle and lower incomes who have less access to high-quality education, subcultural support, and financial backing.1

What are the mechanisms within capitalism that exacerbate inequalities of income or wealth? The following section considers possible types of exploitation within capitalism and factor asymmetries between labor power and capital assets. The second section considers the sources of inequality. The final section briefly reviews some recent proposals for dealing with the problem of inequality.

15.1. Factor Asymmetry and Exploitation under Capitalism

Against its agenda of legal and political equality, does exploitation—in some sense—exist under capitalism? This, of course, depends on the definition of exploitation. There are many possible meanings. Exploitation connotes disadvantages or injustices that apply to one group rather than another. We are concerned in this context with groups or classes that own different types of production factor, including labor power, machinery, and land. We are particularly interested in possible exploitation that can lead to cumulative divergences in income or wealth between rich and poor.

Marx traced the source of exploitation—leading to the concentration of wealth in the hands of the rich—to the extraction of surplus value from the workers in the sphere of production. He presumed that labor is the sole source of all value. It is then observed that much value is not (p.354) returned to labor. The “surplus value” retained by the capitalists is thus exploitation. But there is no good reason to assume that labor is the source of all value. This approach assumes what it has to prove.

As David P. Ellerman (1992) explained, defenders of the Marxian notion of exploitation conflate different questions. Asking who (or what) is responsible for an output is not the same as asking what (in part) causally determines an output or its value. Responsibility here is taken in the more restrictive sense of being personally accountable for the outcome. In this manner we attribute responsibility to persons rather than objects. Intentional agents are held responsible for their acts: the person, not the gun, murders the victim; the driver, not the vehicle, was responsible for the crash. Similar arguments apply to the production process. As the Austrian school economist Friedrich von Wieser (1930, 79) wrote in 1889: “Land and capital have no merit that they bring forth fruit; they are dead tools in the hand of man; and a man is responsible for the use he makes of them.”

Within production, the owners of land, buildings, and machines do nothing: it is the workers alone who are responsible for the output. But this overlooks the responsibility of the owners of land, buildings, and machines in agreeing to the use of their property for productive purposes. Similarly, the criminal who knowingly lent the killer a gun is also responsible for the murder. Distribution matters as well as production. For a more adequate picture it is necessary to consider other possible forms of exploitation.

We may define bargaining exploitation as an asymmetry of bargaining power between agents in the sphere of exchange.2 But, although employers often have much greater bargaining power, combinations of workers can sometimes exert strong bargaining power over employers. There is nothing in the definition of capitalism that implies that, by this measure, capitalists will always have the upper hand in this regard. Bargaining exploitation typically exists under capitalism, but strictly it is not necessary for its existence. Although commonplace, asymmetries of bargaining power are not part of the essence of capitalism, simply because it (p.355) is conceivable that capitalism could exist with relatively little bargaining asymmetry, particularly if employees are organized in strong unions.3

Consider the asymmetrical authority established in the employment contract and exercised in the sphere of production. A crucial feature of the employment contract is the potential power (within limits) of employers over employees regarding the manner of work. This asymmetric authority may be regarded as a form of exploitation, and I previously called it authority exploitation (Hodgson 1982). Ellerman (1992) called for the abolition of asymmetric authority and for the replacement of employment by shared, democratic authority, as found in worker cooperatives. But, while the renting of individuals may have ethical limitations, I argue in the following chapter that the complete abolition of all employment contracts is neither advisable nor a priority.

There are other dimensions of exploitation. The political philosopher Thomas Green (1888, 373) wrote: “Labour, the economist tells us, is a commodity exchangeable like other commodities. This is in a certain sense true, but it is a commodity which attaches in a peculiar manner to the person of man. Hence restrictions may need to be placed on the sale of this commodity which would be unnecessary in other cases, in order to prevent labour from being sold under conditions which make it impossible for the person selling it ever to become a free contributor to social good in any form.” Marshall (1920, 566) echoed this: “When a person sells his services, he has to present himself where they are delivered. It matters nothing to the seller of bricks whether they are to be used in building a palace or a sewer: but it matters a great deal to the seller of labour.” Hobson (1929, 209) wrote similarly: “[A] disabling element in the sale of labour-power is that it is not detachable in the conditions of its delivery from the human factors of personality.” Compared with the capitalist who makes his property available and may reap a reward without actually being present on the job, workers and their labor power are inseparable (Dow 2003). I called this corporeal exploitation (Hodgson 1982).

(p.356) Corporeal exploitation is present in any mode of production involving labor and incomes from other separately owned factors of production. The problem is the disadvantage that that inseparability bestows on labor, compared with the owners of other factors. Given that capitalists can delegate the tasks of management to others and obtain rewards simply from their ownership of nonlabor assets, they are placed at an advantage. They can use their time for trading and other entrepreneurial ventures while simultaneously their property reaps rewards. Hence, corporeal exploitation is likely to have cumulative effects, creating a widening division between one social class and another. Workers have less time to devote to their education or training or to searching for alternative opportunities.

The differences between factors of production in this regard can be ended by eradicating the capacity to reap a reward from the private ownership of nonlabor assets. This might happen through wholesale nationalization or by creating an economy with self-employed producers or worker cooperatives. None of these solutions overcome the inseparability of laboring activity from the worker: at best they deal with labor’s disadvantage by abolishing incomes from the separate ownership of other factors of production.

Alleviation of the problem of corporeal exploitation can result from the reduction of the working day, which would give workers more time apart from their work. But the fundamental difference—noted by Green, Marshall, and Hobson—between the inseparability of labor from its agency and the separability of other assets from their proprietors will always remain within capitalism.

Another vital dimension of possible exploitation was missing from my 1982 account. One of the most important issues in the present book is the centrality of the collateralization of property to the functioning of capitalism. Outside economics and sociology, the concept of capital has meant property that can be used as collateral for securing monetary loans. Differential collateralizability leads us to another dimension of exploitation and a powerful engine of cumulative inequality. Employees are not slaves, and selling oneself into slavery is prohibited. Hence, capitalism limits the possibility of mortgaging labor power. Banks may lend money on the basis of expected future earnings. But, if the loan is not repaid, they cannot seize the earner and sell him or her as a slave. Freedom from enslavement denies the employee opportunities for (p.357) obtaining loans using labor assets as collateral. This is exploitation through unequal collateralizability.4

Unequal access to collateral is a major source of further inequality. Unless they have other property, workers cannot obtain sizable loans. By contrast, the capitalist receives income from property that can also be used as collateral to borrow more money and invest still more in profitable enterprises. Capitalism thus follows the biblical maxim: “For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath” (Matt. 13:12; see also Mark 4:25, Luke 8:18, and Luke 19:26.).

I have identified several factor asymmetries and types of exploitation, but two are particularly important under capitalism. They are inherent sources of inequality within capitalist societies. These are corporeal exploitation and exploitation through unequal collateralizability. Further sources of inequality and possible remedies are addressed in the following sections.

15.2. Sources of Inequality within Capitalism

Some inequality results from individual differences in talent or skill. But this cannot explain the huge gaps between rich and poor in many countries. Much of the inequality of wealth found within capitalist societies results from inequalities of inheritance (Bowles and Gintis 2002; Credit Suisse 2012). Some children are born into much more fortunate circumstances than others. The process is cumulative: inequalities of wealth often lead to differences in education, economic power, and further inequalities in income.

To what extent can inequalities of income or wealth be attributed to the fundamental institutions of capitalism rather than a residual landed aristocracy or other surviving elites from the precapitalist past? Much inherited wealth may originate from former eras. So we must focus on possible sources of inequality from within capitalism itself.

A familiar mantra (which I have previously repeated) is that markets (p.358) are the source of inequality under capitalism.5 Is this true? Noting the “scant attention” paid to this issue and a “dearth of studies” in this area, Christopher Kollmeyer (2012, 400) analyzed data from eighteen advanced capitalist countries over several decades and found “a strong and positive link between the size of consumer markets and income inequality.” Other studies have found that inequality has increased markedly in formerly Soviet-type countries in their transitions from planned to market economies after 1989 (Bandelj and Mahutga 2010). So can markets be blamed for inequality?

Kollmeyer (2012, 401) argued: “Economic activity in consumer markets is based on competition and the pursuit of private gain, which should create abundant opportunities for individual differentiation and hence relatively high levels of income inequality.” By contrast: “[The] public sector is oriented toward the fulfilment of social need using resources obtained through progressive taxation.” But markets and “the pursuit of private gain” are simply assumed to be the source of inequality, without any demonstration of the mechanisms involved. Another error is the presumption that the public sector is necessarily oriented toward the egalitarian fulfilment of social need. Nationalization does not necessarily turn an industry into a public benefit. Some state-run systems have generated catastrophic famines or degraded the natural environment. Kollmeyer suggested that markets in modern economies should be dramatically diminished in scope. But he presumed rather than demonstrated the benefits of public provision. Both the argument and the policy conclusion are challengeable. Kollmeyer’s claims are based on a statistical correlation with no explanation of causation.

In his hard-hitting analysis of growing inequality in the United States, Joseph E. Stiglitz (2012b, xiii) wrote: “Markets, by themselves, even when they are stable, often lead to high levels of inequality.” But he then modified this claim: “Market forces played a role, but it was not market forces alone” (28). The subtle shift from “markets” to “market forces” should be noted. Blaming market forces is not necessarily the same thing as blaming markets. Such forces could be inequalities of power and wealth that operate within markets. In this case, the main (p.359) factors involved in the explanation resemble the inequality that we are trying to explain. Then, in his chapter on “markets and inequality,” Stiglitz blamed not markets as such but how they are “shaped” along with other possible causes of inequality, including technological changes, advances in productivity, international shifts in comparative advantage, and other important factors that are not strictly markets as such. Despite the rhetoric, Stiglitz did not show that markets can be blamed for inequality.

In reality, of course, no market is perfectly competitive. When a seller has sufficient salable assets to affect prices, then strategic market behavior is possible to drive out competitors. Many economists see greater competition as the remedy. If markets per se are to be blamed for inequality, then it has to be shown that competitive markets also have this outcome. Unless we can demonstrate their culpability, blaming competitive markets for inequalities of success or failure might be like blaming the water for drowning a weak swimmer. To demonstrate that competitive markets are a source of inequality we would have to start from an imagined world where there was initial equality in the distribution of income and wealth and then show how the use of markets (or commodity exchange) alone led to inequality. I know of no such theoretical explanation. Markets involve voluntary exchange, where both parties to an exchange expect benefits. One party to the exchange may benefit more than the other, but there is no reason to assume that individuals who benefit more or benefit less will generally do so.

Of course, there can be strong positive feedbacks where the rich get richer, as in Daniel Rigney’s (2010) “parable of the Monopoly game.” But the sources of the resulting inequalities are not the acts of trading themselves. They are combinations of luck and strategy that lead to small differences in wealth that get exaggerated as the game unfolds. Random effects or slight skill differences become cumulatively exaggerated via positive feedbacks. Here, the multiplication of effects is to blame for almost all the inequality, not the markets themselves.

Those who blame markets for inequality sometimes overlook their institutional character and isolate them from their institutional integument. Markets are institutionally constructed and not natural phenomena. The level of inequality under capitalism is then a function of a complex of diverse institutions often involving different types of market.

What about globalization? The globalization of markets has important consequences but does not necessarily increase inequality. According to the empirical study by Branko Milanovic (2011), global income (p.360) inequality has not increased much since 1950. Furthermore, most global income inequality is due to differences between countries rather than differences within countries. Accordingly, as less-developed countries grow, global inequality could decrease.

It is theoretically possible for inequality to increase within every country while global inequality decreases (Milanovic 2005). This would be an example of the well-known Simpson’s paradox, or the Yule-Simpson effect, in which a pattern that is ubiquitous in different individual cases is absent or reversed when the data are aggregated. Consider this intuitively. About one-fifth of the world’s population is Chinese. In 1950, most people in China were desperately poor. These many millions were at the bottom of the global prosperity rankings. Since 1980, China has become more unequal, but most of its population has become much better off. As China moves up the country rankings in terms of average wealth or income, it affects global distribution and the global degree of inequality. Many ordinary Chinese move from the bottom of the global prosperity league, which amounts to a significant global redistribution of income and wealth. Depending on countervailing forces, this can in principle mean a reduction in global inequality. This helps explain why globalization does not necessarily lead to greater global inequality despite high and growing inequality within many countries.

This is not an apology for globalization. There is a case for protecting infant industries in developing countries (List 1841; Chang 2002a, 2002b; Fletcher 2011).6 I am also sympathetic to Rodrik’s (2011) arguments against “hyperglobalization.” My point here is different: there is (p.361) no forceful argument to suggest that the globalization of markets necessarily leads to greater global inequality.

So, if markets per se are not the root cause of inequality under capitalism, then what is? A clear answer to this question is vital if effective policies to counter inequality are to be developed. Capitalism builds on inherited inequalities of class, ethnicity, and gender. By affording more opportunities for the generation of profits, it may also exaggerate differences due to location or ability. Partly through the operation of markets, it can also enhance positive feedbacks that further magnify these differences. But its core sources of inequality lie elsewhere.

The answer has been foreshadowed in the preceding section. The foremost generator of inequality under capitalism is not markets but capital.7 This may sound Marxist, but it is not. I define capital differently from Marx and most other economists (excepting Fetter, Hobson, Mitchell Innes, Schumpeter, Sombart, and Weber). Capital is money, or the realizable money value of owned and collateralizable property. Precisely because waged employees are not slaves, they cannot use their lifetime capacity for work as collateral to obtain money loans. The very commercial freedom of workers denies them the possibility to use their labor assets or skills as collateral. By contrast, capitalists may use their property to make profits and as collateral to borrow money, invest, and make still more money. Differences become cumulative, between those with and without collateralizable assets, and between different amounts of collateralizable wealth. Even when workers become homeowners with mortgages, the wealthier can still race ahead.

Labor cannot be collateralized because workers are not owned: there are missing futures markets for labor. A further consequence—as noted above—is that employers have diminished incentives to invest in the skills of their workforce. Especially as capitalism becomes more knowledge intensive, unless compensatory measures are put in place, this can create an unskilled and low-paid underclass and further exacerbate inequality. A socially excluded underclass is observable in several developed capitalist countries.

Another source of inequality results from the inseparability of the worker from the work itself. By contrast, the owners of other factors of (p.362) production are free to trade and seek other opportunities while their property makes money or yields other rewards. As Green, Marshall, and Hobson recognized, this puts workers at a disadvantage. As noted above, even slight disadvantages can have cumulative effects.

None of these core drivers of inequality can be diminished by extending markets or increasing competition. These drivers are congenital to capitalism and its system of wage labor. If capitalism is to be retained, then the compensatory arrangements required to counter inequality cannot simply be extensions of markets or private property rights.

By misdefining capital and overlooking these asymmetries, both orthodox and heterodox economists have neglected the true sources of inequality under capitalism. Improved definitions begin to reveal these core asymmetries. Good definitions are vital for empirical discovery and policy development.

15.3. Alleviating Inequality

Primarily through concentrations of self-expanding capital (collateralizable property), capitalism has developed rich elites sustained via inherited wealth and in many ways more powerful than the landed aristocracy that preceded them.8

Let us briefly turn the clock back to an earlier age, when the inheritance of land was the primary mechanism of inequality. Allow me to introduce the Anglo-American radical Thomas Paine. Over two hundred years ago he proposed a one-off, state-funded distribution “to every person, when arrived at the age of twenty-one years, the sum of fifteen pounds sterling, as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property” (Paine 1797).9 The effect of this benefit would be to provide every adult with an amount of wealth that could be used to invest in property (p.363) or personal development, irrespective of the income or status of his or her parents.

Rare among thinkers, Paine is admired by moderate socialists, social democrats, and free market libertarians. Robert Lamb (2010) showed that Paine’s analysis of property rights is a distinct and underestimated contribution to political theory. Paine combined a libertarian defense of private ownership with a redistributive egalitarianism, founded on the individual right to both property and personal development. Instead, the socialist movement from the 1830s made the abolition of private property and commodity exchange the priority, believing that this was the only way to deal with inequality. By contrast, Paine understood that an essential source of prosperity in modern society was devolved ownership; its abolition would reduce incentives and the size of the cake to be shared. Private ownership of many assets, protected by the law, is necessary to guarantee individual autonomy and the vibrancy of civil society. Policies that might address inequality—like wholesale collectivization—would be counterproductive if they baffled incentives and reduced overall output. For over a century, socialists took the wrong road. Many have since tried to find the way back. Perhaps we should return to Paine and move forward from there.10

Today, we face problems of inequality even greater than those addressed by Paine. Land and buildings are immobile and can be readily assessed and taxed. But capital is fleet-footed and covert: it can be easily moved around the world or hidden in foreign accounts.

Bruce Ackerman and Anne Alstott (1999) took up similar themes in their proposal for a “stakeholder society.” They stressed progressive taxes on wealth rather than on income. Echoing Paine, they proposed a large cash grant to all citizens when they reach the age of majority, around the benchmark cost of taking a bachelor’s degree at a private university in the United States. This grant would be repaid into the national treasury at death. They argued: “Property is so important to the (p.364) free development of individual personality that everybody ought to have some” (191). To further advance redistribution, they argued for the gradual implementation of an annual wealth tax of 2 percent on a person’s net worth above a threshold of $80,000. Like Paine, they argued that every citizen has the right to share in the wealth accumulated by preceding generations. A redistribution of wealth, they proposed, would bolster the sense of community and common citizenship.

Samuel Bowles and Herbert Gintis (1999) also advocated wealth redistribution. They addressed problems of asymmetrical information in enterprises, schools, and elsewhere and proposed redistributions of property in order to align the incentives of owners more closely with the incentives of users. While they proposed no ban on capitalist enterprises, they favored workplace democracy and government provision of credit to worker cooperatives.

As modern capitalist economies become more knowledge intensive, access to education to develop skills becomes all the more important. Those deprived of such education suffer a degree of social exclusion, and, unless it is addressed, this problem is likely to get worse (Cowen 2013). Widespread skill-development policies are needed, alongside integrated measures to deal with job displacement and unemployment (Ashton and Green 1996; Crouch, Finegold, and Sako 1999; Acemoglu and Autor 2011, 2012).

The need for ongoing education is one argument for a basic income guarantee. Such a basic income would be paid to everyone out of state funds, irrespective of other income or wealth and whether people are working or not (Van Parijs 1992, 1995; Corning 2011). It is justified on the grounds that individuals require a minimum income to function as free and choosing agents. Everyone has the right to the means of survival so that they can make use of their liberty, have some autonomy, function as effective citizens, and participate in civil society. These are conditions of adequate and educated inclusion in the market world of choice and trade.

A basic income would also reward caring work to help the sick or elderly, which is typically performed within families. But it is typically undervalued and uncompensated monetarily (Folbre 1994; Folbre and Nelson 2000; Nussbaum 2000; Jochimsen 2003). A basic income would also encourage new entrepreneurs and creative artists and reduce migration from the countryside to the cities in search of work. There would also (p.365) be a huge saving in administration costs of often complex social security and welfare schemes.

Some forms of unconditional basic income have been pledged or introduced in several localities, including Alaska and Brazil. Several developed countries have legal minimum income entitlements. In 1968, James Tobin, Paul A. Samuelson, John Kenneth Galbraith, and another twelve hundred economists signed a document calling for the US Congress to introduce a system of income guarantees and supplements. Winners of the Nobel Prize in economics who fully support a basic income include Milton Friedman, Friedrich Hayek, James Meade, Herbert Simon, and Robert Solow. This idea cuts across the political spectrum.

A key challenge for modern capitalist societies, alongside the needs to protect the natural environment and enhance the quality of life, is to retain the dynamic of innovation and investment while ensuring that the rewards of the global system are not returned largely to the richer owners of capital. As Paine (1797) put it long ago: “All accumulation, therefore, of personal property, beyond what a man’s own hands produce, is derived to him by living in society; and he owes on every principle of justice, of gratitude, and of civilization, a part of that accumulation from whence the whole came.”

But the benefits of “living in society” are not simply through the advantages of cooperation or the division of labor. Modern societies have developed complex institutions that have empowered innovations and massive expansions of wealth. The ultimate and indivisible accumulation is not simply of things but of knowledge, relations, and rules guarded by law within an adaptable and pluralist polity.


(1.) An additional problem with the increasing concentration of income in the top few percent is that overall savings rates increase because those with the highest incomes tend to save more. “The relationship is straightforward and ironclad: as more money becomes concentrated at the top, aggregate demand goes into a decline” (Stiglitz 2012a). This can lead to further unemployment and stagnation (Palley 2012).

(2.) In Hodgson (1982), I noted Chamberlain’s (1951) measure of bargaining power: bargaining power of A = (cost to B of disagreement with A)/(cost to B of agreement with A). In Marshall’s (1920, 565–69) discussion of the “peculiarities” of labor, as opposed to other agents of production, he saw these peculiarities as a source of labor’s “disadvantage in bargaining,” which “wherever it exists is likely to be cumulative in its effects” (569).

(3.) Some economists identified a source of asymmetrical bargaining power in the “perishability” of labor power (Marshall 1920, 567; Hobson 1929, 208–9). If unemployed this hour, then that labor is lost forever. Here, perishability relates to opportunities for use. Hence, as Marshall (1920, 567) concedes and Hutt (1930) emphasizes, land and machines are also perishable in this sense. A machine unused is also an opportunity lost forever. Labor power is not unique in this respect.

(4.) This does not mean that slaves are free of exploitation. They suffer the loss of legal rights and are exploited in different ways. The forms of exploitation discussed here are the ones most relevant to capitalism.

(5.) Note that Marx (1976) did not regard markets as the source of inequality. Instead, he located it historically in the “primitive accumulation” that separated the workers from the means of production and in the ongoing expropriation of surplus value in the sphere of production.

(6.) Critics of the infant-industry argument pointed out that competitive capital markets can ensure that new firms can borrow money to invest sufficiently to overcome initial problems of workforce training and production scale and thereby reach the levels of efficiency required to compete internationally (Meade 1955; Baldwin 1969). This capital market argument overlooks the Keynesian or Knightian type of uncertainties involved. Furthermore, even if the lenders had a sound positive appraisal of future benefits once the industry had matured, they still might be deterred from lending to an infant firm under capitalism because of missing futures markets for labor and the possibility that trained workers may quit the emerging firm or industry. As Hart (1975) showed, with missing (e.g., labor) markets there is no guarantee that their incremental extension (e.g., for finance capital) will improve efficiency. Of course, there is no guarantee that tariffs to protect infant industries will work either, and there are clear downside risks with such a policy. But it does mean that any infant industry protection must be combined with interventionist measures to incentivize the training and retention of workers by firms.

(7.) Piketty (2014) provided historical data and rich empirical vindication of this claim. He showed that the main driver of inequality is the tendency of returns on capital to exceed the rate of economic growth.

(8.) Piketty and Zucman (2013) and Piketty (2014) showed that wealth-to-income ratios in rich countries have been increasing since the 1970s and are returning to pre-1900 levels. As they put it: “Capital is making a comeback.” Because wealth is very concentrated, high wealth-to-income ratios imply that inequalities of wealth—and potentially of inherited wealth—matter more. Policies of progressive capital and inheritance taxation move up the agenda (Ackerman and Alstott 1999; Bowles and Gindis 1999; Piketty and Saez 2013; Piketty 2014).

(9.) In terms of purchasing power in 2011, £15 converts to roughly £1,300 or $2,000. But, as a fraction of 1797 UK GDP, £15 converts to about £79,000 or $120,000 as an equivalent share of 2011 UK GDP.

(10.) The protosocialist Thomas Spence proposed in the 1770s that land should be owned in common at the parish level instead of being nationalized. He attacked Paine’s 1797 proposal on the grounds that it retained individual ownership of land (Bonnett 2007). Evidence suggests that common ownership or participatory management can work on a smaller scale, as with cooperatives and some common-pool resources (Ostrom 1990; Bonin, Jones, and Putterman 1993).