Improving Our Standard of Living (Wattpad Edition)

Chapter 23: Why Inequality Exists

Some inequality exists because some individuals work harder, smarter, or are in unique professions. This type of disparity is justified.

There's a different kind of inequity that's unjust. The type caused by exploitation. We know it's unjust because it leads to an income gap that's large enough to keep a nation's quality of life lower than it otherwise would be.

Excessive inequality exists when the people that produce most of the wealth in the world—the working class—receive the smallest share of it. This arrangement was often true since antiquity.

The working class is the segment of the population that produces most of the goods and services in the world. In ancient times, they were slaves. In feudal times, they were serfs. Today, they are employees. I include the middle class among them. The line between the two groups is blurry enough, especially in the 21st century due to rising inequality, that they are practically the same demographic. They are primarily employees of large shareholders.

The opposite of the working class is the property-owning class—traditionally called the upper class. They own the means of production—the lands, buildings, tools, and businesses. They also own the employees to a large extent. A condition of employment is that the worker agrees to sell him or herself for a certain number of hours per day. When someone buys massive quantities of stock in a company, they're not only buying its physical assets, but also the labor power of its people. Much of the value of any corporation—the price of its shares—is the value of its employees.

Workers use the means of production (land and tools) to create goods and services. They get a cut of the profit for their labor. But it's often the owners of the means of production that get the largest share. When that happens, excessive inequality is the result.

In ancient times, the primary owners of the means of production were slave masters. In the Middle Ages, they were feudal lords and aristocrats. Today, they are capitalists.

Karl Marx, one of the founders of a variant of communism, talked a lot about the means of production in his works. So have other economists and intellectuals, several of whom weren't communists. You don't have to be a socialist to understand that a wealthy minority owns most of the means of production. Nor do you have to be a socialist to appreciate the fact that the relationship between the property owners and the working class has historically been one of exploitation.

Like slave masters and aristocrats of the past, capitalists own most of the property that people use to produce goods and services. This property is in the form of stocks and other business assets. Recall that, according to G. William Domhoff, Research Professor at the University of California, Santa Cruz, the richest 10% of Americans own up to 94% of stocks, bonds, trust funds, and business equity [1].

Because they own most of the property in the world, capitalists act like landlords, but for labor. They take the goods and services produced by the employees, sell them, and pocket much of the profit. They don't even sell the products personally. They have other people do that for them.

In theory, there's nothing wrong with this setup because anyone can buy shares of stock in any number of businesses. Slaves and serfs didn't have that option.

In practice, though, it often doesn't work out that way; otherwise, stock ownership wouldn't be so concentrated.

Recall the Monopoly analogy I gave earlier. Unfettered competition without mechanisms of redistribution always results in grossly unequal distributions of wealth. The game of Monopoly results in ever-growing inequality not because it has mechanisms that encourage it, rather, it lacks mechanisms that prevent inequality from getting worse. In other words, if a society chooses not to redistribute income, then it is choosing by inaction to redistribute most wealth into the hands of a tiny minority.