Some Aspects of the Inequality of Incomes in Modern Communities

Hugh Dalton

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135033095
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

Divided into four parts, the book is structured as follows:
Part 1: Examines the extent to which the inequality of incomes is guided by ethical principles.
Part 2: Illustrates the growth of the theory of distribution in the hands of successive generations of economists.
Part 3: Develops the theory on the subject of the division of income between categories.
Part 4: Looks at the division of income between people and the causes of that inequality, paying particular attention to the factor of inherited wealth.

Part I

Some Ethical Aspects of the Inequality of Incomes.

Chapter I

ECONOMIC CONTRASTS AND THE MODERN SPIRIT

§1. “The problem of poverty” is an economic commonplace. On its existence and importance, though not upon its solution, all thoughtful persons are agreed.

The word “poverty,” as commonly used, implies a contrast. It signifies a failure, through insufficiency of income, to reach a certain standard of economic welfare. This standard may be either a standard which is in fact reached by certain communities, or sections of communities, or a standard which, it is thought, should be reached, if life, from an economic point of view, is to be worth living.

Thus, on the one hand, we speak of the poverty of the inhabitants of India, as compared with those of Great Britain, or of the worst paid workers in Great Britain, as compared with the working classes in general, or of the working classes in general as compared with “the rich”; or, on the other hand, we speak of the poverty of certain sections of the population, as compared with a standard which is held to be “reasonable,” or with a standard measured by the purchasing power of a “living wage,” however defined.

Further, it accords with common knowledge and common usage to say that, in almost all modern communities, there exists great poverty side by side with great wealth. In the United Kingdom, for example, it was estimated before the war that half the total income of the community went to about 12%, and a third of the total income to about 3%, of the population.¹

The contrast between wealth and poverty, based upon the size of incomes, is heightened by the contrast between different methods of obtaining income and, in particular, between active work and passive ownership. It is again a commonplace that, while the great majority of incomes, and especially of small incomes, are only obtained by hard work, many of the larger incomes are obtained with little or no work on the part of their recipients. It results, in the words of an Italian economist, that in modem communities “some live without working and others work without living.”²

§2. The degree of acquiescence with which these facts have generally been regarded may surprise the philosopher, as it would assuredly surprise a visitor from some happier planet, where such strong contrasts were unknown. The acquiescence of the more fortunate classes does not, perhaps, need much explanation. It is common to find even reflective men of good will regarding the economic arrangements under which they prosper as being better than any practicable alternative, and attributing a great part of their own prosperity to their own merits. To others acquiescence comes even more easily, though it may sometimes be tinged with a sense of insecurity. “The shallow rich,” says Bagshot, who was a shrewd observer but no revolutionary, “talk much of the turbulence of the poor and their tendency to agitate. But it is the patience of the poor that most strikes those who know them.”³ Yet what seems like conscious patience is often the almost unconscious acquiescence of habit, that “enormous flywheel of society, its most precious conservative agent, which alone keeps us within the bounds of ordinance, and saves the children of fortune from the envious uprisings of the poor.”⁴ Nor is this all. “One must remember the stuff of which life is made. One must consider what an overwhelming preponderance of the most tenacious energies and most concentrated interests of a society must be absorbed between material cares and the solicitude of the affections… . . Men and women have to live. The task for most of them is arduous enough to make them well pleased with even such imperfect shelter as they find in the use and wont of daily existence.”⁵ The more arduous the task, the less the opportunity for discontent, or even for reflection. Only when men have a surplus of energy over and above that necessary for earning a living, have they the time, or the power, or the spirit, to take stock of their condition and to ponder large projects of improvement.

§3. The majority of mankind have always been poor,⁶ and nearly always acquiescent in their poverty.⁷ Such is the general evidence of history. But recent years have seen in many countries a perceptible and widespread change, a stirring of the mud of acquiescence, if nothing more. The general causes of this “unrest,” as it is vaguely called, cannot be adequately discussed here, but certain aspects of the modem movement of opinion, of which this unrest is a symbol, may be shortly noticed.

In the first place, the thought of ordinary people concerning the economic structure of society is becoming both more comprehensive and more critical. The kindred forces of education and “agitation” are powerful, and their power is increased by the growth of great cities, where intercourse and the circulation of ideas are easy. And, as common thought becomes more comprehensive, the larger economic contrasts are more clearly realised, and, as it becomes more critical, these contrasts are more sharply called in question. Modern social classes are chiefly defined by differences of income, and modern sentiment is increasingly opposed to large inequalities between classes. There is, indeed, an appreciable movement of adults from class to class, and a still more appreciable movement of children into other classes than those of their parents. Such mobility does something no doubt to weaken resentment at the inequalities between classes. But the mobility will need to grow much greater, and the inequalities much smaller, before such resentment can be expected to disappear.

At the present time the opinion steadily gains ground that there is at least a presumption against all economic inequality. Inequality, according to this view, is not necessarily, nor in all cases, an evil, and even where it is admittedly an evil, it may none the less be the least of alternative evils. But “inequality is always on the defensive, and the greater and more lasting it is, the more difficult is its defence.”⁸ The possessors of abnormally swollen incomes are coming more and more to be regarded as somewhat unwholesome economic freaks.

In the second place, we may notice the growth of a spirit, which those who dislike it call “materialist.” A heavier and more deliberate stress is laid upon the importance of economic conditions. He, upon whom the economic forces of this world press hardly, is less satisfied than of old with the promise of better times beyond the grave. He wants to enjoy them now.

In the third place, in proportion as forms of government grow more democratic, the poor are liable to experience more acutely a sense of divided personality. Political equality, but economic inequality; political sovereignty, some would say, but economic subjection! The wide diffusion of political power acts, no doubt, as a check on counsels of violence. But it acts no less strongly, in the long run, as a stimulus to levelling policies, to be achieved by political means.

Finally, it is no longer believed, if indeed it ever was, except by a few, that great economic inequalities tend to disappear “of themselves,” that any “invisible hand” removes them, while human hands are folded in passive expectation, that any “economic harmonies” dissolve them, while men go plodding along the beaten tracks of their fathers. On the contrary, it is constantly asserted and widely believed that “the rich are growing richer and the poor poorer,”⁹ and the development of modem society seems to be marked, in many directions, by increasing disharmonies, both economic and psychological, between man and his environment.¹⁰

§4. And thus it could be truly said eight years ago that “to-day we are in a temper to reconstruct economic society, as we were once in a temper to reconstruct political society.”¹¹ Upon that temper came the impact of four years of war, shattering, agonising, embittering, disillusioning beyond the possibility of estimate. The full effects of that impact will gradually unfold themselves.

But some things are clear now. In some countries the survivors of the fighting have been promised “a land fit for heroes,” and are busily searching for it. In others the old economic structure of society has collapsed already and the new structure, which will eventually replace it, is likely to differ widely from the old. In no country, it may safely be said, has the war failed to quicken men’s criticism of the social order, and to strengthen their intolerance of all sharp economic contrasts, which appear to them to lack justification. Rather does it seem that throughout the world “there is a great tide flowing in the hearts of men,” which will wash against the foundations of inequality, wherever they may be found, and may flow so strongly as to carry away many familiar landmarks.¹² In such a situation there is both great promise of good and great danger of evil and, in order to realise the former and avoid the latter, each member of the community should make the contribution of thought and effort, of which he is most capable. Among the contributions which a student of economic science can best make is an attempt to solve some of those outstanding problems of economic cause and effect, which are relevant to the contrast of wealth and poverty, but for which complete solutions have not yet been found. This book is an attempt of this kind.

¹ These are Sir L. Chiozza Money’s figures (Riches and Poverty, 1910, Chapter III), which are admitted by other experts to be substantially accurate.Compare Bowley, Division of the Product of Industry. It is not yet possible to speak with any precision of the effects of the war on distribution.

² Loria, Basi Economiche della Società, p. I.

³ J. A. Spender, Comments of Bagshot, I, p. 38.

⁴ William James, Principles of Psychology, I, p. 121.

⁵ Morley, On Compromise, p. 203.

⁶ Poor by comparison not only with the wealthier classes of their day and nation, but with the lowest standard of economic welfare, which can be deemed to permit of a civilised existence.

⁷ Compare Maine, (Ancient Law, p. 68) who remarks that at every point of past time “by far the greater part of mankind” has been without any conscious desire for “progress.”

⁸ Taussig, Principles of Economics, I, p. 137.

⁹ This form of words, though very common, is not free from ambiguity. Compare Part III, Chapter I below.

¹⁰ Compare Graham Wallas, The Great Society, Chapters I and IV.

¹¹ Woodrow Wilson, The New Freedom, p. 26. Compare Taussig, Principles of Economics., I, p. 137.

¹² Mr. Keynes in the second chapter of his Economic Consequences of the Peace has brilliantly pictured the pre-war psychology of modern capitalistic societies and their inherent instability.

Chapter II

ECONOMIC WELFARE AND THE INEQUALITY OF INCOMES

§1. Human welfare is divisible into economic, or material, welfare on the one hand and, on the other hand, various kinds of welfare which are not economic. This division will be sufficiently intelligible without further discussion, though by the nature of things the dividing line is not clear cut.¹

The relative importance which should be attached to economic and non-economic welfare, and the probable effects of changes in economic welfare upon welfare as a whole, have been much disputed. But modem opinion, in the civilised countries of the Western world at any rate, seems to hold with increasing strength that economic welfare is of very great importance, both for its own sake and as a means to other sorts of welfare, which may often be of even greater intrinsic importance, and further that an increase in economic welfare is generally likely to cause an increase in human welfare as a whole. Man does not live by bread alone, but without bread he cannot live at all, and without a sufficiency of bread he cannot even hope to live worthily. Moreover, the burden of proof rests upon those who assert that, in any particular case, an increase of economic welfare diminishes welfare in the widest sense. With this view of things I personally have no quarrel, and I shall adopt it in what follows.

§2. Income consists of the means of economic welfare,² and great inequality of incomes in any community implies great inequality in the economic welfare attained by different individuals. But this is not all. For it implies also considerable waste of potential economic welfare. Put broadly, and in the language of common sense, the case against large inequalities of income is that the less urgent needs of the rich are satisfied, while the more urgent needs of the poor are left unsatisfied. The rich are more than amply fed, while the poor go hungry. This is merely an application of the economists’ law of diminishing marginal utility, which states that, other things being equal, as the quantity of any commodity or, more generally, of purchasing power, increases, its total utility increases, but its marginal utility diminishes. An unequal distribution of a given amount of purchasing power among a given number of people is, therefore, likely to be a wasteful distribution from the point of view of economic welfare, and the more unequal the distribut...