A volume on Wealth, and a public lecture on having too much of it

by Ingrid Robeyns on May 20, 2017

I’m packing for a short trip to Berlin, where I’ll be giving a public lecture on Monday on the question whether there should be an upper limit to how much wealth a person should morally be able to hold (it’s open to the public so you’re welcome!). The lecture will draw from a paper I wrote that was just published in the most recent volume of NOMOS, which was edited by Jack Knight and Melissa Schwartzberg, and which is entirely on Wealth (there is a link to the PDF of my chapter online too, though I’m not sure whether that will stay there for long). I haven’t been able to read the other papers in the Volume, but a quick skim suggests the other chapters should really be very interesting. I’ll write more about the volume after the Summer, when I will have embarked on a 5-year ERC-funded research project investigating the plausibility of upper limits on ecological and economic resources.

One thing that is unfortunate about my chapter, is that at some point in the publication process, the acknowledgements were dropped, and I didn’t notice. That’s a real shame, since so many people discussed these ideas with me over the years in which this paper matured, and if Philosophy had the publication culture of the natural sciences, at least half of them would have become co-authors. So, as a second-best solution, let me thank them here: Joel Anderson, Constanze Binder, Simon Caney, Rutger Claassen, Bart Engelen, Jim Johnson, Chandran Kukathas, Sem de Maagt, Avishai Margalit, Colin Macleod, Roland Pierik, Gijs van Donselaar, Debra Satz, Erik Schokkaert, Melissa Schwartzberg, Liam Shields, Zosia Stemplowska, Laura Valentini, Bruno Verbeek, Nicholas Vrousalis and Lea Ypi. I owe you all a drink, friends.

Right now, I’m trying not to get too distracted with the many really interesting (and in my view also politically very important) questions that we’ll be able to address in this project, since I’ve promised myself to first finish the book on the capability approach that I wrote about here in the past – but then dropped for a while due to what I take to be the most common reason academics don’t finish their book projects within the foreseen time frame – too much other work, too many distractions, and not enough time to write. Luckily, the other thing I’ll do in Berlin is to give a seminar to graduate students on how capabilities and human rights relate – which will be one chapter of the never-ending capability book project. Perhaps material for another blog post?

{ 46 comments }

1

Tom West 05.20.17 at 8:53 pm

I use the standard definition of “maximum moral amount of wealth”: 2x the amount of wealth I currently hold :-).

2

MikeM 05.20.17 at 11:19 pm

If I understand you correctly (IANAP), this is exemplified by sports leagues that (1) restrict the amount of money that a team can spend on its players and (2) make sure that the worst-off team has an advantage in acquiring new talent.

3

John Quiggin 05.20.17 at 11:33 pm

The chapter is very good. My only concern is that it tends to present limitarianism as something new and different, rather than a property of most standard views of political justice. The “unmet needs” version of limitarianism is implied by any reasonable version of consequentialism, such as classical utilitarianism.

The most common version of utilitarianism has log utility, which means that the marginal utility of wealth is inversely proportional to the wealth level. Taking the US, with median wealth of $50 000, the marginal utility of additional wealth for those with $5 million is 1 per cent of marginal utility at the median. That is, in effect, there is zero cost, in terms of average utility in taking money from the rich, provided it generates any positive benefit.

So, you get immediately to the conclusion that the top marginal tax rate should be the one that maximizes revenue, probably around 70 per cent. Arguments against this kind of limitarianism are either non-consequentialist (the rich deserve their wealth etc) or depend on some version of “trickle-down theory” claiming that maximizing current revenue will come at the cost of slower economic growth.

As I’ve argued before, the same thing is implied by Rawls, although Rawls himself tried to run away from the conclusions of his own theory.

I’m hoping to do more on this, Real Soon Now.

4

bad Jim 05.21.17 at 4:41 am

I have a trivial nitpick, or perhaps a failure of comprehension. The formula adds Yg, all income, to A, the annuitized value of all property, which appears to count investment income twice.

As to the incentive issue, it would seem reasonable to apply the revenue maximizing tax rate only up to some limit, above which an increasing portion would be confiscated. No one is infinitely productive; above a certain level it ought to be presumed that one’s returns are predatory, subtracting from the common welfare.

5

Ingrid Robeyns 05.21.17 at 6:44 am

John, I agree that many existing normative views (all the way, but for very different reasons, from the ancient Greeks) entail the limitarian view. But by giving this distributive rule/doctrine a name, and by putting it in the spotlights (rather than having it more implicit and/or as a consequence of a normative view), I think it will be able to play a bigger role in scholarly and political discussions about institutional design.
I’m working with a PhD student on tracing limitarian views throughout the history of economic/political/normative thinking, and the deeper we dig, the more thinkers we find that have defended ethical views that boil down to limitarianism – though for very different reasons (in ethics, often it was based on some version of virtue ethics or God plays an important role in the argument, which is a justification that can’t be upheld in pluralist societies.)

It’s also very interesting that ethics and economics would have different ways to look at this, since, to the best of my knowledge, almost all economic approaches are consequentialist, whereas consequentialism is much more contested in moral philosophy. Perhaps (thinking out loud) I’m trying to work on get those two into more of a conversation.

6

bad Jim 05.21.17 at 6:56 am

Executive compensation in the U.S. clearly exceeds the limit of general utility, since CEO’s and venture capitalists routinely reap enormous rewards for destroying companies, not all of which merited destruction.

The disparity in pay between American and Eurasian executives and the comparative performance of their companies allows us to estimate both the effectiveness of incentive compensation and what the limit ought to be.

7

Brett 05.21.17 at 7:02 am

I question how this would work. A lot of wealth is tied up in equity holdings in a company, either a partnership or a percentage of the shares issued either publicly or held privately (Zuckerberg is a multi-billionaire because he owns a massive chunk of Facebook stock, for example). Would a wealth maximum require that he sell most of his share in the company to . . . somebody, and thus relinquish control? Or would it just confiscate most of the dividend income from that stock?

8

Tim Worstall 05.21.17 at 11:17 am

I find myself fascinated by the unmet needs argument. OK, so tax revenues could be used to meet some of these needs. So, if some have surplus, tax them to meet the needs.

And yet one of the ways in which to gain surplus is to meet the unmet needs of others. Sure, there are other ways to get rich, inheritance, rent seeking, flat out thieving, politics – to the extent those two differ – but even a cursory glance at the rich lists shows us that between some and a majority of those with vast surplus did actually gain that by meeting unmet needs.

Zuckerberg is already mentioned here for example. And there are at least some hundreds of millions of poor people in the poor world using Facebook as their primary means of distance communication. For free. Which seems a pretty good meeting of needs.

And we do have this general thought that the ability to gain surplus is what motivates – at least some – to try to meet needs. The benevolence of the brewer also comes to mind.

Which leads to an awkward thought. If our justification is the ability to meet needs then isn’t the surplus gained by meeting needs in some way different from that gained by other means?

9

anonymousse 05.21.17 at 11:19 am

“(Zuckerberg is a multi-billionaire because he owns a massive chunk of Facebook stock, for example). Would a wealth maximum require that he sell most of his share in the company to . . . somebody, and thus relinquish control? Or would it just confiscate most of the dividend income from that stock?”

None of the above. Zuckerberg, by all accounts, is a good progressive. So an exception would be made…

10

Collin Street 05.21.17 at 11:31 am

Would a wealth maximum require that he sell most of his share in the company to . . . somebody, and thus relinquish control? Or would it just confiscate most of the dividend income from that stock?

Brett, to answer your question it might do you good to ponder the truism that a sale involves by its nature a swapping of two things of nominally-equal value.

Now. Re-read carefully exactly what’s being proposed. Note what impact a swap of two equal-valued things will have on the extent of the thing that’s being proposed to be limited.

Note that nothing I have written is stuff you can plausibly claim to be unaware of. You have all you should need to answer your own question.

11

Val 05.21.17 at 12:22 pm

I can’t comment at length because I haven’t read your article or other links, but this sounds great to me – interesting idea.

12

Scott P. 05.21.17 at 3:29 pm

“Brett, to answer your question it might do you good to ponder the truism that a sale involves by its nature a swapping of two things of nominally-equal value. “

This is only true in a perfectly liquid market. An ounce of gold may be worth $1000 on the open market, but that doesn’t mean I could find a buyer or buyers for 10 million ounces at that rate.

13

Mike Huben 05.21.17 at 5:23 pm

How could limitarianism possibly solve the democratic problem if it only limits individuals? Corporations would then hold the vast concentrations of wealth and would simply be proxies for their controllers. If you limited them in the US, then limited US corporations would have to compete with the giants in the rest of the world.

One possible solution for influencing opinion is a progressive tax on political influence (media purchases, lobbyists, think tanks), that will be redistributed as credits that everyone can donate to their favorite political purpose. The idea would be to enfranchise the poor as well as the rich.

14

Ingrid Robeyns 05.21.17 at 7:09 pm

I agree that the fact that wealth is in part in companies and not all in the hands of individuals makes moving towards a society (let alone world) without superrich more difficult, and this is something I need to think hard about in the near future. But I think it is fair to say that there are at least some things that could already be done right now (what exactly, depends on the country you’re considering). In principle it would be possible to tax income from businesses in the same way as income from labour (whereas now in most (all?) countries, labour is taxed much higher). Yet the standard response is: capital mobility. But this is not a ‘hard’ feasibility issue e.g. related to laws of gravity or biological constraints; it is something that could in principle change, if the majority of people would want it, and educate themselves about question to do with political economy (put differently: become truly ‘political’ rather than merely looking for a Great Leader, and believe whatever bullshit he tells them, to then do exactly the reverse when elected).
If we look at the distance between the lowest and highest wages within organisations – we see that these have grown in recent decades. So there was a time, not so long ago, that people thought it was fine that the highest paid persons would earn, say, 7 times the wage of the lowest paid person, not 30 or 50 or what-have-you-times. This, to my mind, seems to be evidence that the ideological climate has changed in a direct away from limitarianism: now, the sky is the limit, and there is nothing morally wrong with that principle (or alternatively, morals are for losers anyway, we don’t need to care about them).
Hence I think the objections raised by several of you are truly important and I do not want to minimise the challenges they pose (luckily I’ll have five years and a team to look into them). Yet in general terms, what I want to do is to contribute to a line of thinking, and make more explicit, that there are good reasons to put caps at how much we should want. I am unsure whether this means you should always have political force to move in that direction (i.e. taxation and maximum income legislation), since this may, as in the example Tim Worstall gives of the benefits of Facebook, be harming the ultimate goals. There may also sometimes be a trade-off for the different reasons we have for limitarianism – the ones I give in this paper (unmet urgent needs and the democratic argument) are presumably not the only reasons for taking this idea seriously.

15

Gareth Wilson 05.21.17 at 9:05 pm

Does anyone reading this have wealth that exceeds the limits they would want?

16

Layman 05.21.17 at 9:44 pm

“I agree that the fact that wealth is in part in companies and not all in the hands of individuals makes moving towards a society (let alone world) without superrich more difficult, and this is something I need to think hard about in the near future.”

Actually I think this ought to make the whole thing easier. Wealth which is tied up in shares of a company – or, as is more likely, shares in a mutual fund which in turn is holding shares in other funds and companies – is wealth one isn’t doing anything with. One isn’t using it to eat, or to pay the rent, or to buy clothing, or medical care, or to buy transportation, or to pay for education. It is theoretical wealth, a notion of wealth that never becomes real for the user, and I think you’ll find that the overwhelming majority of the super-rich have wealth like this, wealth they never enjoy, wealth they will never succeed in consuming no matter how hard they try. In that sense, it is wealth they don’t have at all, and will never miss when you tax it away from them.

“Does anyone reading this have wealth that exceeds the limits they would want?”

Sure. Why do you ask?

17

Gareth Wilson 05.22.17 at 3:18 am

Can I have it, then?

18

Brett 05.22.17 at 4:22 am

@Layman

One isn’t using it to eat, or to pay the rent, or to buy clothing, or medical care, or to buy transportation, or to pay for education.

Unless it’s your pension fund.

19

Peter T 05.22.17 at 10:23 am

re Layman and Brett

Wealth beyond what is consumed is a claim on future income, not a pile of goodies stacked in a cave somewhere. Fairly obviously, Bill Gates is never going to be able to consume his wealth. Would he object if his claims on future income were limited to what he could consume? Very probably. But how much moral or social weight should his objections have?

20

Layman 05.22.17 at 11:10 am

“Would he object if his claims on future income were limited to what he could consume? Very probably. But how much moral or social weight should his objections have?”

Yes, precisely.

21

Trader Joe 05.22.17 at 7:56 pm

When I read discussions about wealth and suggestions about what should be done about it there are almost always two glaring omissions. First would be a failure to recognize how the wealth is created and to assume automatically that it was ill gotten and the second is the ‘what should be done’ is always some version of appropriation rather than redirection.

When one looks at the ultra-rich, say the Forbes 400, the overwhelming plurality are either people who created a business and became wealthy as a result, or people who inherited from someone who created a business. This differs rather starkly from a person who perhaps has accumulated $5 million (still a huge sum) as a result of some combination of professional accomplishment, personal thrift and careful investing. As someone noted above, such a sum while far from ordinary, can definitely be consistent with building ones own pension since in many countries that’s no longer a given of either citizenship or long-employment.

In the former case, Bill Gates for example never said – ahh forget it, I won’t invent Windows since it will just get taxed away, I’ll smoke a joint instead. In that instance, wealth was just one aspect or even a mere byproduct of an interest in accomplishment. In the case of personal long-term accumulation the disincentives of taxation are significantly greater and are far more likely to produce counter-productive behavior.

Equally if, to use the example above of Facebook, why should it be that the government appropriates the billions of excess wealth generated by someone and uses their God-like powers (which are usually crap) to decide where the money should be redistributed. General budgets, once possessed of funds, seem as likely to use them to buy more F-35 jets as help a family at the poverty line.

Why couldn’t the individual who made the money make that decision to directly fund charity or social organization provided the wealth was in fact distributed? No doubt more would flow to causes just as the environment and social safety-net aid if it was done that way than being sheltered behind the arts and higher education (where it also ends up in endowments with no productive purpose only to be impressive in annual statements). To be honest, I trust the billionaire more than I trust the likes of DJT or everyone in the Senate.

22

engels 05.22.17 at 8:51 pm

a failure to recognize how the wealth is created

We have that convo if you want Joe. Who created the value Gates/Zuck/Bezos et al leech off? ‘The people who produce the software’, ‘the people who use it (thus contributing unpaid to the lucrative behavioural data hoard)’, ‘workers in productive industries whose value Silicon Valley is able to syphon off through its strategic position as intermediary’, and ‘publically funded institutions who contributed most of the underlying technology’ all seem like promising starting points.

23

engels 05.22.17 at 9:01 pm

whether there should be an upper limit to how much wealth a person should morally be able to hold

If by wealth you mean private property, imo the answer is zero.

24

novakant 05.22.17 at 9:33 pm

the answer is zero

Are you a monk?

25

Layman 05.23.17 at 12:09 pm

Trader Joe: “In the former case, Bill Gates for example never said – ahh forget it, I won’t invent Windows since it will just get taxed away, I’ll smoke a joint instead…”

It’s pretty amazing that you chose, as your example of wealth not gained through nefarious means, Bill Gates and Microsoft. Do you not know anything about them?

26

engels 05.23.17 at 1:06 pm

#24 No, a socialist *stands back while NK’s head explodes*

27

Trader Joe 05.23.17 at 2:30 pm

@25 layman
Fair enough, I could have chose a better example (my mind was more on his pledging all the gains to the Gates Foundation than the disputed early history of MSFT). Choose Buffett, Bezos or many others if you prefer.

@Engles – I know where you’re going to go and don’t think we need to rehash some iteration of the “You didn’t make that” debate again – we might both rather a world with different property rights, but in this one they exist and wealth tends to accumulate to those that have them. The referenced businesses satisfied needs and legally earned a rent for doing so, after the revolution we can debate slicing the pie your way.

28

Scott P. 05.23.17 at 2:38 pm

“Why couldn’t the individual who made the money make that decision to directly fund charity or social organization provided the wealth was in fact distributed? “

I’ll just point out that it was the charities and social organizations who were the most fervently behind Social Security and other public benefits programs, precisely because they knew full well that private donations would only ever cover a tiny fraction of the need.

29

engels 05.23.17 at 3:30 pm

The referenced businesses…legally earned a rent

Fine—then don’t call their owners ‘wealth creators’ but ‘wealth accruers’, ‘rentiers’ or—my preferred term—’blood-sucking capitalist scum’.

30

Kiwanda 05.23.17 at 5:02 pm

Nothing in Facebook couldn’t have readily been done by someone else; the value of Facebook lies in network effects: people use it because other people use it. Facebook is extracting rent on that network.

Windows *was* pretty much done by someone else; the value of Microsoft lies in network effects: people use Windows because developers produce lots of apps for it, who do so because lots of people use Windows, and so on; and because Office formats are the “standard”; and so on. Microsoft is extracting rent on that network.

Amazon is extracting rent on buyers and sellers who have fewer and fewer places to go; Uber’s strategy is to undercut taxi companies in cities by selling rides for less than they cost, until they have a monopoly, and can extract rent on it. Google is extracting rent on their near-monopoly on search.

Rockefeller, of course, acquired a monopoly and extracted rent from it, as did Vanderbilt.

Carnegie, H. Ross Perot, and others grew wealthy via corruption: lucrative contracts or monopolies obtained via corrupt government; those rich Russians got their wealth via corruption.

Fred Koch grew wealthy doing business with Hitler and Stalin; other companies are well-known to have had lucrative contracts with the Nazis.

Sheldon Adelson’s wealth comes from exploiting gambling addicts.

So great wealth generally comes from: rent extraction on monopolies, corruption, and doing business with evil. Not quite “every great fortune is founded on a great crime”, but close.

31

Trader Joe 05.23.17 at 5:52 pm

@29 and 30
Must everything be an argument over semantics? Rentiers, wealth accumulators, call it what you want -we’re referring to the same batch of individuals and my point is they didn’t just do these things for the money alone, there were additional motivations in their desire to build the businesses and related fortunes they amassed.

I assume because you chose to pick on vocabulary you have no fundamental quarrel with my actual point that there is a difference between the way wealth should be redistributed between the ultra-rich (such as all these examples however named) and the industry of relatively small business people and/or professionals who accrue wealth which might be relatively large, but which to a great extent is disposable by themselves or immediate family. That was the point before we had to play word whack-a-mole.

32

Guy Harris 05.23.17 at 6:28 pm

Layman:

Wealth which is tied up in shares of a company – or, as is more likely, shares in a mutual fund which in turn is holding shares in other funds and companies – is wealth one isn’t doing anything with. One isn’t using it to eat, or to pay the rent, or to buy clothing, or medical care, or to buy transportation, or to pay for education. It is theoretical wealth, a notion of wealth that never becomes real for the user,

If the company or mutual fund is paying dividends, the owners of the shares might well be using those dividends for those purposes.

33

novakant 05.23.17 at 6:28 pm

Engels, before you hurl around insults, you might want to be a bit more precise in your terminology, there are very few socialists who would agree with you.

34

engels 05.23.17 at 7:22 pm

I’m didn’t ‘hurl around insults’. Your comment was a stupid drive-by which misunderstands the definition of private property and I don’t need to have ‘socialism’ libsplained to me, thanks.

35

Layman 05.23.17 at 7:35 pm

“If the company or mutual fund is paying dividends, the owners of the shares might well be using those dividends for those purposes.”

They might, indeed. But with an historic return on capital of about 4 percent, a fortune of (say) $100 million can be expected to produce $4 million per year in dividends, interest, returns, etc; one of $1 billion produce $40 million; and even one of $10 million produce nearly half a million. Someone *needs* that kind of money for food, shelter, education, transportation, etc? And they’re entitled to keep the massive pile so that it will go on producing the slightly smaller pile? I don’t know about you, but I see plenty of handy trees, lampposts, etc, and remain surprised every day that the go unused.

36

Layman 05.23.17 at 7:40 pm

Trader Joe: “…we might both rather a world with different property rights, but in this one they exist and wealth tends to accumulate to those that have them…”

But this is explicitly a discussion about whether we ought to have different property rights than the ones we have now, so I don’t think you can rebut a comment by ignoring that premise and taking refuge in the property rights we have now.

37

tom 05.23.17 at 8:11 pm

The discussion would benefit from distinguishing the wealth of what one could call the ultra-wealthy (top 0.01%) from the one of the “mere” wealthy (99.99% to say 90%). One can oppose the former without wanting to abolish also the other. I gather from @31 that this is Trader Joe’s point, on which I agree. However, her/his previous choice of examples is particularly infelicitous as they are all examples of ultra-wealthy.

38

engels 05.23.17 at 10:13 pm

Apologies for hijacking the thread. It’s a very interesting idea and seems related to some of Corbyn’s proposals.

39

Guy Harris 05.23.17 at 10:38 pm

layman:

But with an historic return on capital of about 4 percent, a fortune of (say) $100 million can be expected to produce $4 million per year in dividends, interest, returns, etc; one of $1 billion produce $40 million; and even one of $10 million produce nearly half a million. Someone *needs* that kind of money for food, shelter, education, transportation, etc? And they’re entitled to keep the massive pile so that it will go on producing the slightly smaller pile?

No, but that’s not what I was saying.

The point I was making was that the form the wealth takes isn’t sufficient to make it “theoretical wealth”. Now you’re talking about the amount, which matters as well – and, arguably, matters more.

I wouldn’t begrudge somebody’s modest amount of wealth, providing enough income for their retirement, although one could make an argument in favor of that wealth being in more, well, social hands, providing a social pension.

40

MisterMr 05.24.17 at 9:11 am

In my view, most existing wealth is fictitous wealth, and is just a projection on cashflows, so the accumulation of wealth is a spurious problem, it’s just a consequence of low wages. I’ll explain my point with an example:

Suppose that country A’s product is entirely made of agricultural products such as potatoes, carrots etc., and suppose that there are some landlords and some sharecroppers.
In this situation, wealth is mostly represented by land, but what is the value of land? The value of land depends on how much landlords pump it up, which depends on 1) how much money they have and 2) whether they want to accumulate wealth or spend in personal consumption.

How much money do the landloerds have? on aggregate it depends on how much the sharecroppers take home; on the other hand landlord’s willingness to save could be described as a discount rate. So for example if sharecroppers take home 75% of the products, and landlords have a 5% discount rate, the total value of land will be 500, or five times the annual product.

But this number doesn’t represent an amount of “real” wealth, it’s not a stockpile of carrots, potatoes etc. equal to 5 years of product, but just a notional value that depends on the wage share and the discount rate.
If the landlords become more thrifty, they tend to pump up the value of land, the discount rate falls say from 5% to 4%, ant the value of land goes up from 500 to 625, but no product was really saved or accumulated. A similar effect happens if the wage share falls or rises.

In recent times, whe had a fall in the wage share, and also a fall in the interest rate (that we can take as a measure of the discount rate on wealth), so the wealth to income ratio necessariously rises, and as wealth is more4 unevenly distributed than income this makes “inequality” skyrocket.

But in reality the main problem is the falling wage share, if the wage share rises the “excess wealth” will also largely disappear.

PS: the fact that most wealth is fictitious wealth should be taken as a critique of the idea that capitalists, even small ones, accumulate the fruits of their labor.
PPS: The idea of limiting the wealth of the top 0,1%, but then leaving the remaining distribution as it is, as the apotheosis of “small burgoise” mindset.

41

Peter T 05.25.17 at 6:38 am

MisterMr’s example above makes clear what I was getting at in an earlier comment. I do think it needs to be taken further to have a useful discussion, because the different ideas behind the term “wealth: are confused (deliberately, I think). There’s wealth as in ownership of something someone else will pay a lot for but that play no part in production (old master paintings), wealth as in ownership of some valuable resource and wealth as in some claim to future production. Most great wealth takes this last form – and “wealth” is the present value of these claims (interestingly, usually close to 20 times current income – eg shares trade close to 17 times over the long run, land between 18 and 22 times).

Views on the legitimacy of this vary but, as I noted in another thread, there are reasons to believe that wealthy elites are not wholly parasitic (“bandits”). The structures of which they are an inevitable part do enable greater production. So the question is the form and limit of their reward. I suggest an economy where riches and wealth are less closely coupled may be healthier, but have no recipe for getting there.

42

engels 05.25.17 at 12:07 pm

The structures of which they are an inevitable part do enable greater production.

…compared to alternative structures that obtained in the past.

Not necessarily compared to alternative structures that might obtain in the future (unless you’re Dr Pangloss…)

43

engels 05.25.17 at 12:29 pm

‘Feudalism is a far more productive system than hunter-gathering so we can’t dispense with Feudal Lords, but let’s demand we only work on their land 4 days a week, not 5…’

44

bruce wilder 05.25.17 at 7:34 pm

Conventional economics has always had a panglossian subtext and conceptual confusion about the nature of wealth is at the core of that tendentious narrative of an economy driven by public sacrifice and private virtue. It is so embedded as conventional in our discourse that it is hard to see how to oppose it effectively; one is almost compelled to make concessions to its premise that wealth is always and everywhere an unalloyed good thing, which we are wrong to envy and should all want more of in the world.

The deeper truth, it seems to me, is: wealth is power and nothing more than that in an ontological sense.

Ownership of property, accounting for cash flows, economic rents — these are simply corollaries to the thesis, wealth is power. And, power is the political capacity to organize social cooperation, productively for the general welfare or otherwise.

Whether power is a good thing depends pretty obviously on its “distribution”, but in complicated ways that involve the ability to negotiate, bargain and resist on the one hand as well as the ability to choose achievable objectives wisely and with foresight. When we think about the distribution of power and contrast the problems that immediately come to mind with the economist’s denatured distribution of income and wealth, we begin to get some hint of the kind of scam economists run, when they wring their hands over some highly abstract “inequality” and talk of redistribution or predistribution, as if the operations of power can be distilled out of the economy by an imaginary system markets before we even think about political economy as a system.

I think engels had it exactly right, when he identified economic rents as the funding source of wealth. Identifying wealth with the value attributed to capital as an input to production processes and increasing production to increasing wealth, as the capital stock accumulates — these narratives are persuasive fairy tales that reinforce the large panglossian narrative of the economy as a system driven by the prime mover of moral virtue.

That fairy tale is not an accurate description of the institutional mechanics in the actual political economy. In the real world, sunk-cost investments made in the past have no inherent call on future income streams at all. Logically, the claims made for a sunk-cost can be ignored (and logically, should be ignored) in any forward-looking bargaining or decision-making. They are not ignored, because political power can be exercised to secure funding streams in excess of what is needed to keep dedicated capital stock in productive use (and counterfactually, political power can be exercised as discretion regarding excluding land and capital stock from particular use — no squatters! no right to repair! legalized resale price maintenance! intellectual property!) Business schools train aspiring professional managers and entrepreneurs to find “a business model,” which is polite language for constructing a situation in which the political power is available from some combination of property rights, public concessions, and “market power” to secure economic rents on sunk cost investments after the fact of those investments.

What MisterMr says about wealth being a fiction strikes me as an important truth. We inhabit a money economy, which has been thoroughly financialized. Economists laboring on the fairy tale insist that money is maya, a veil of illusion, which we should endeavor to penetrate or strip away. It reminds me a bit of Neo taking the red pill to discover the ugly reality beneath the illusion of The Matrix, except that for the economists, what they suppose to be the underlying reality is idealized, while the surface reality is supposedly full of unnecessary suffering and mistaken policy. (If only workers would understand how much everyone would benefit if they just took a paycut.)

Money is a fiction, and an often highly useful fiction. In the real economy sans money and debt, there’s really not much scope for saving and investing current effort without money to account for investment and “store” value. We only exist, in reality, in the current moment, always the current moment. Current efforts are always a use it or lose it proposition. Any anticipation of the future is necessarily an exercise in imaginative fiction. Money lets us calculate on and do contingent deals with each other concerning an imagined future; money creates a bridge into the future for social cooperation to cross. Money, interweaved with debt and property rights and contracts, is that fictional bridge, which the organization of social cooperation is then driven across.

Here’s the thing about financial wealth: the only economic function for purely financial wealth is as insurance. If you have big piles of money, you earn a return on your big piles of money by renting it out, so to speak, in the form of insurance. Someone else’s prospective but unrealized misfortune is your gold mine. Or, if you really know how to work it, someone else’s current misfortune can be “ameliorated” into their perpetual immiseration (debt peonage, credit card debt, student loans, payday lending). And, yes, socializing insurance as cooperative banking, mutual insurance and finance or publicly (tax-financed) health care and pensions has some pretty obvious potential to improve the general welfare in a broad range of circumstances by substituting a broader construction of wealth (notice that that is what a credit union or a non-profit HMO is) for a high concentration of wealth constructed by the rapacious activity of CEOs leveraging a high concentration of political power to construct a higher concentration of wealth to construct a higher concentration of power to construct . . . . Predistribution, indeed.

Wealth conceived of as power helps to make clearer than wealth as the capital stock of productive virtue the ways in which wealth is inherently problematic, prone to parasitism and the like, ways made worse by a concentration of wealth and power.

Wealth as power still leaves open an ambivalence about what power — the political capacity to organize social cooperation — can accomplish. I don’t imagine an ideal economy without power. My view of an “ideal” economy would be more of a “mix your poisons” prescription, lots of power widely distributed with means of low-cost resolution of conflict and contention. While I do not think it makes sense to attribute Bill Gates’ success with Windows or John D Rockefeller’s with Standard Oil to virtue in the product, the business idea or its author, per se, I also do not entirely discount the social value of their being able to accomplish something. A paralyzed economy is not my idea of a socialist paradise.

Conceiving of wealth as power, my idea of limits would center on developing a concept for containing the hubris of power. Corruption, too, as equity demands, but more globally, hubris. Do less, because without being able to know the externalized consequences in detail, one knows necessarily there must be externalized consequences, intended or not. In terms of global resource limits, Quiggin’s notion that the base problem might be the assimilative capacity of the environment to absorb the exhaust and entropy entailed by our activities might be a useful way to begin a sketch. Sustainable cannot realistically be conceived of as virtue reinvented unless it also comes with enlightened understanding of the need to limit all we do, in the interests of limiting the waste necessarily attendant on doing anything at all, in an uncertain world in which we necessarily do not know or control everything, even to a modest degree.

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Peter T 05.26.17 at 4:57 am

engels

If money is power, and power enables greater production, then less power equals less production. This has been tested multiple times, and proved true every time.

“Power” in this sense is coordinated effort. More complex social structures enable greater coordination, at the expense of subordination and abuse. Is it worth it? Hunter-gatherers often do not think so, but are unable to resist their more powerful neighbours.

Since we are, for good or ill, locked into complex power structures, it’s more profitable to think about taming and constraining power than abolishing it.

And, btw, I would judge that feudal structures were mostly less oppressive but as productive as the classical institutions they replaced (a serf is better off than a gang-slave).

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Yama 05.26.17 at 12:48 pm

bruce wilder 05.25.17 at 7:34 pm

I think William Timberman has made this point several times, but it is worth repeating:

Write the book, dammit. I know of no one who expresses these ideas better.

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