In his excellent new book In Defense of Capitalism (Republic Book Publishers, 2023), the historian and political scientist Rainer Zitelmann asks a vital question about inequality. In asking this question, he makes a move characteristic of his work. Demands to reduce inequality of wealth and income are widespread, and often debates about proposals to do this are centered in political philosophy. Do people have natural rights to their property that state-mandated measures of redistribution violate? Is inequality inherently bad?
Zitelmann has some interest in questions like these, but his primary focus is elsewhere. He asks what the empirical record tells us about measures to promote equality. He in effect says to defenders of redistribution, “You will have to pay a price for what you want that most people will find unacceptably high.” In this week’s column, I’d like to discuss some of the points he raises.
Zitelmann contends that inequality has always accompanied prosperity:
I am of the opinion that an increase in social inequality is not at all worthy of criticism if it is accompanied by a reduction in poverty. The Nobel Prize winner for economics Angus Deaton even goes so far as to argue that progress is always accompanied by inequality. The fruits of progress have rarely been equally distributed in history. Thus, between 1550 and 1750, the life expectancy of English ducal families was comparable to that of the general population, possibly even slightly lower. After 1750, the life expectancy of the aristocracy increased sharply compared to that of the general population, opening up a gap that was almost 20 years in 1850. With the onset of the Industrial Revolution in the eighteenth century and the gradual beginning of a social order that is today called capitalism or a market economy, life expectancy also increased for the general population from 40 years in 1850 to 45 in 1900 and almost 70 years in 1950. “A better world makes for a world of differences; escapes make for inequality,” Deaton observes.
What happens if egalitarians ignore this fact and go ahead with their plans? Here Zitelmann asks another question: Under what conditions will they succeed in reducing inequality? It turns out that these conditions are drastic:
Another question that is all too rarely asked is: what would be the price of eliminating inequality? In 2017, the renowned Stanford historian and scholar of ancient history Walter Scheidel presented an impressive historical analysis of this question in his book The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century. He [Scheidel] concludes that: “So far as we can tell, environments that were free from major violent shocks and their broader repercussions hardly ever witnessed major compressions of inequality”. . . . According to Scheidel, the greatest levelers of the twentieth-century did not include peaceful social reforms; they were the two world wars and the communist revolutions. . . . The price of reducing inequality has thus usually involved violent shocks and catastrophes, whose victims have been not only the rich, but millions and millions of people who have had to pay with the loss of their lives, freedom, income, or property. . . . “If we seek to rebalance the current distribution of income and wealth in favor of greater equality,” Scheidel writes, “we cannot simply close our eyes to what it took to accomplish this goal in the past. We need to ask whether great inequality has ever been alleviated without great violence.” Scheidel’s answer is a resounding no.
In arguing that substantial reductions in inequality have an unacceptably high cost, Zitelmann also draws on Thomas Piketty, a leftist economist who strongly supports egalitarian redistribution:
In Capital in the Twenty-First Century, Thomas Piketty even argues that “progressive taxation was as much a product of two world wars as it was of democracy.” Prior to the First World War, “tax rates, even on the most astronomical incomes, remained extremely low. . . . This was true everywhere without exception.” . . . “Of course, it is impossible to say,” explains Piketty, “what would have happened had it not been for the shock of 1914–1918. A movement had clearly been launched. Nevertheless, it seems certain that had the shock not occurred, the move toward a more progressive tax system would at the very least have been much slower, and top rates might never have risen as high as they did.”
We can readily grasp why substantial egalitarian redistribution has such a high cost. The rich will be reluctant, to say the least, to give up their money. Only if a violent revolution gets rid of them or if the tremendous costs of a war require that their funds be taxed away can we take major steps toward equality.
It might be objected that welfare states like Sweden and Denmark have achieved egalitarian redistribution without violence. Zitelmann counters this contention by noting that these countries remain quite inegalitarian, often as much as or more so than countries with less of a welfare state. He says in his earlier book The Power of Capitalism (LID Publishing, 2019):
Spoiler alert: contemporary Sweden is not a socialist country. According to the Heritage Foundation’s 2018 Index of Economic Freedom ranking, Sweden is among the most market-oriented economies worldwide. Overall, it ranks in 15th place, ahead of South Korea (27th) and Germany (25th) and behind Denmark—another supposedly socialist country—in 12th place.
It’s essential to keep in mind that Zitelmann isn’t trying to show that all redistributive measures have severe social costs, but only that substantial ones do. Also, the issue that concerns us here isn’t whether moderate redistributive measures are good for the poor.
A committed egalitarian might respond to this argument by saying: “Even if war and revolution have been required to get substantial equality in the past, that doesn’t rule it out now. The argument just points to a historical regularity. It isn’t a praxeological law.” But many generalizations based on common sense and experience are very likely true. It isn’t a praxeological law that voluntary payments to the government won’t raise as much money as taxes. But it would be a poor idea to bet against this.