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J. Bradford DeLong
University of California at Berkeley and NBER
Critics of Marx's attack on market capitalism's alleged inability to distribute income equally have tended to fall into two schools. The _rst is the "so what?" schoolmade up of thinkers like Friedrich von Hayek, Irving Kristol, and Robert Nozick. They argued that the market's distribution of income and wealth is the just distribution: it is the distribution that arises if everyone uses their own powers and capacities to produce and then to voluntarily exchange commodities with one another. Each gets to keep the work of his own hands or to freely dispose of his wealth to his heirs or whoever else he wishes to bless, and each exchanges his goods for others only when it seems advantageous to do so. What could be fairer than this?
According to this school, concern over the distribution of income is motivated by ideological envy of the smart and productive. According to Kristol, economists study the income distribution not because it is or ought to be a matter of public concern, but because they have been distracted from their proper tasks by ideological "quasi-socialist conceptions of justice" that are "destructive ofeconomics as a scienti_c discipline." Attempts to shift the distribution of income, by incentives or taxes, away from what the free market produces is unjust the equivalent of theft, according to Nozick; and leading inevitably to totalitarianism, according to Hayek. Even if market capitalism did produce a grotesquely inegalitarian distribution of wealth, according to this school, it would still be the right system for producing and allocating goods. Levelling policies have no economic justi_cation and have only a shaky political or moral one as well, for it is not clear whether equality is "an ideal or a nonideal for a good society."
This school is such as to make refutation dif_cult: their universe of values and assumptions is "crazy" in that it has so little in common with the one that the rest of us take for granted that it is hard to determine what arguments will have purchase. One argument that should have purchase is that all social orders have at least a part of their foundation in acts of violence. Northerners forcibly con_scated thefor the most part peacefully inheritedslave property of southern whites during and after the Civil War even though those holding slaves had for the most part acquired them "justly"through purchase freely agreed to by both buyer and seller, through free gift, or through inheritance. Slave property was fruit of a poisoned tree.
Similar conclusions would apply to other forms of property that trace their roots back to violence. But consequences ramify. It is impossible to say what items of property would exist, and who would own them, had the slave trade and the Civil War not happened. All we possessincluding our literacy, and the prenatal and neonatal diets rich in protein to which we owe our "natural" intelligencewould not be ours if it not for some past unredressed violence. All we can produceexcept what food we could gather and catch with handmade stone tools alonewe owe to technological knowledge developed by previous generations of humanity that we have not paid for.
It is not possible to say what the state of things would be if all past violence were fully redressed. To say that the present distribution is just because it is the result of just exchanges and transfers starting from some just earlier position is meaningless. The earlier position from which the just exchanges have proceeded is just only by the principal of force majeurethat we had the might to create the earlier position and declare it just, and that what we say still goes because you are too weak to change it. The principle that "justice consists solely of justice in exchange" is a cloak for the principle that "the strong do what they can, and the weak suffer what they must."
John Maynard Keynes in the early 1930's forecast the economic possibilities for his grandchildren. He looked forward to tremendous growth in wealth, and to sociological and moral transformation. The tremendous growth in wealth has taken place. In large part the sociological and moral transformation has not. But the twentieth century has still seen marvels: it is no exaggeration to say that it has seen as much economic history take place as the previous three centuries, and more than took place in any millenium ending before 1600.
The twentieth century has seen the pace of accumulation and productivity growth in the industrial core ratchet up by a few notches. The nineteenth century saw material wealth within rich countries more or less double. The twentieth century has seen material wealth multiply more than tenfoldby so much that it is doubtful that the rate of total productivity growth over the century has a meaning. This multiplication of wealth has goven many of the relatively poor in modern industrial economies standards of living comparable to, and in some dimensions far exceeding, those that the rich of a century ago experienced.
The twentieth century has seen the substantial reduction of racism as an of_cial ideology and has seen an enormous transformation of the gender division of labor, at least within the industrial core of the world economy. The extreme reduction in fertility, the expectation that women will spend considerable portions of their adult life in the paid labor force, and the opening of educational and employment opportunities to women have worked at least half of a profound transformation of the economic roles of the sexes.
The twentieth century has seen a rising tide lift most boats, at least within the industrial core. There are still homeless, beggars, and hungry. But the widening of the distribution of income and wealth feared by Marx has not taken place within industrial economies. However, the "convergence" of nations toward approximately equal levels of productivity has not yet begun. John Stuart Mill's optimism was as misplaced as Karl Marx's pessimism. While there is substantial reason to believe that all, or almost all, nations will be richer at the end of the twenty-_rst century than they are now at the end of the twentieth, there is little reason to believe that the distribution of incomes and wealth across nations will be any tighter in relative terms.
The twentieth century has seen the decline of agriculture. Agriculture used to absorb half or more of a nation's household. In advanced industrial economies, agriculture is the activity of only a tiny minority. For most of the twentieth century the decline of agriculture was matched by the rise of industry. Manufacturing became the largest single sector measured either in terms of production or in terms of employment. Now manufacturing employmentespecially assembly-line and craftwork manufacturing employmentis declining, while the various sub-components of the service sector grow larger and larger.
The twentieth century has seen governments that rank among the worst in human history. It has seen wars that have killed soldiers and civilians in numbers that previous centuries could not have imagined. Democracy and representative governments did not _ourish for most of the twentieth century. The interwar period saw more than twenty nations try and then abandon parliamentary institutions. The post-World War II period has seen many more do the same. Today democracies are at a high point, with the fall of most Latin American dictatorships and juntas in the past half decade. But democracy is not secure.
The most destructive government of the twentieth century was the aggressive, highly nationalistic régime that ruled Germany from 19331945. Hitler's National Socialism in_icted extraordinary slaughter on its own and its neighbors' populations. Perhaps _fty million were killed by the Nazis and in the European portion of World War II. Barely behindwithin an order of magnitude of the slaughter brought about by Hitlerwere the governments of Stalin and Mao. Other Communist governmentsfrom the bureaucratic despotisms of eastern Europe to the famine-inducing régimes of Ethiopia and Cambodia to the unholy cross between Leninism and absolute hereditary monarchy found in North Koreahave been tolerable only by comparison with Stalin and Mao. In all cases, Communist governments have brought political unfreedom and material impoverishment in their wake.
Many other governments have, to a lesser degree, consciously or unconsciously sacri_ced economic growth to the perceived necessities of state building and to the task of maintaining the current régime. The result has been disappointment in development: in spite of the openness of the storehouse of industrial technology to all and the extraordinary returns to be gained from borrowing from this storehouse, the poor countries of the world show no sign of having begun to catch up to the richer in the twentieth century. This would have come as no surprise to Karl Marx. Social formations in which the dominant powers have a strong interest in rapid growth and development are rare: only the merchant and businessman-dominated societies of western Europe had such a tendency before the industrial revolution. And so it is not surprising that bureaucracy and army-dominated régimes do not have such a dynamic of rapid growth and development.
The twentieth century has also seen, in some countries, some of the best governments known to world history. The social democratic mixed economies and welfare states of the industrial core have laid the foundations for human happiness to a greater degree than any previous régimes. The mixed economies are far from being utopias. It is sobering and yet gratifying to know that they are as close as any segment of humanity has yet come.
The twentieth century has seen the United States gain and lose its position as the standard-bearer of the new age. For most of this century, Europeans, Asians, South Americans, Africans, and Australians wanting to see what the future is like have travelled to the United States. They will not do so in the future. The features that gave America its industrial predominance relative to other advanced industrial economiesits extraordinary land, its well-educated and skilled labor force, the enormous extent of its market in a world hedged by trade barriers and tariffs, its concentration on the "American system" of mass production through interchangeable parts (which turned out to be the principal locus of technological advance in the twentieth century), and its high quantity of investment in the machines that embody modern industrial technologieshave passed or are passing. Europe today has as large a tariff and trade barrier-free market. Germany has a superior educational system. Japan invests moreinvests twice as much per capitain machinery and equipment. The next century will probably see no country play the role of path_nder to the future that the U.S. played in the twentieth and that Britain played in the nineteenth century.
Will America fall far behind other countries? It is doubtful: too much of the basic research and development that underlies new technologies is still done in America. It is still too large a market. Its economy is still open to new entrepreneurs and innovations, and this seems unlikely to change.
The distribution of income within America, however, is likely to move in an unfavorable direction. The unskilled have done very well in America in the twentieth century because their labor was essential to the productivity of the land, capital, and skills owned by those at and near the top of the income distribution. As communications improve and the effective size of the world shrinks, the advantage of unskilled workers in New York vis-a-vis unskilled workers in Mexico City or Bombay is likely to decline. Just as _rms have learned to weave their webs of production across continents and countries in the twentieth centuryreducing differentials in wealth between regions of the United States and countries of the EEC by an order of magnitudeso _rms will learn to weave their webs of production across oceans in the twenty-_rst century.
The regions of the United States are much more equal, although New York City is no more equal, today than it was at the turn of the century. Gaps in wealth between nations are much, much larger than gaps in wealth within nations have ever been. So the increasing span of control exercised by _rms over the next century is likely to see a reduction in wealth inequality between nations, and an increase in wealth inequality within industrial nations, in the next century. Either educational systems in the industrial core will become much better and essentially all work in the industrial core will either be skilled work or untraded services, or the relatively unskilled will _nd themselves under extremely heavy pressure in the labor market and their wages will drop in relative terms.
The only edge that unskilled workers in the United States in the next century will have over unskilled workers elsewhere will be their knowledge of the English language. This will give them a powerful edge, but it may well not be enough. America's image of itself as an egalitarian country, where "making it" is easy for those with industry and enterprise, may not survive long into the twenty-_rst century. The economic prospects of our grandchildren who will be in America are bright, but their prospects are much much brighter if they make sure to be counted among the educated and the skilled.
The Pace of twenty-_rst Century Growth
What else does the twenty-_rst century hold? Will the pace of economic growth continue? In all likelihood yes. The underlying engines of development that have forced the pace of twentieth century economic growth in the industrial west are still there. Innovation is still a key road to market dominance and pro_ts. Research and development are still being carried out. Governments are still willing to provide the public goods of infrastructure and organization without which market economies cannot function. The most likely future sees a turn of the 22 nd century in which life in the industrial westwhich will then have changed its name because it will encompass the Paci_c rim as wellis as different from today as life today is from life a century ago at the turn of the twentieth century. Could we see it, we would be in the position of Edward Bellamy: having our technological imaginings in all likelihood outstripped by reality. Every reason that John Maynard Keynes gave, 60 years ago, for expecting economic growth to continue and compound at an exponential pace is still valid.
Does the twenty-_rst century inevitably hold a continuation of the trends of the twentieth? No. At least three things could stop the wave of increasing wealth: wars, governments, and environmental catastrophes. War today could annihilate human civilizations and severely reduce human populations in a week or less. It is unlikely that anyone will start a war certain to end in the mutual destruction of the contending parties. It is much more likely that someone who believes they have a sound grasp of situations and psychologies will _nd out, too late, that it is not so. A large war is not likely in the next century, but there seems to be no reason to run the risk. A far-sighted political strategy in the post-World War II period would have long since taken many more steps to reduce the possibility of even limited nuclear war than have been taken to date.
More likely than a single, civilization-destroying, worldwide nuclear war are a series of small wars, each affecting a relatively small part of the world. The destructiveness even of modern conventional weapons is such that little industrial infrastructure will survive. Civilian populations may well not survive as other than refugees either. Such wars may well impoverish those who survive them for a generation. But they are unlikely to reach into the industrial heart of the world economy. The rich nations are too well defended, and know that they have too much to lose.
There is one major caveat: writing a century ago, in the late nineteenth century, I would have said the same thing. I would have said that the industrial world had outgrown war, that wars had been fought for dynastic monarchs and conquerers but now representative governments were in the saddle and would _ght defensive but not offensive wars, and that modern wars were too expensive and destructive to be contemplated. They were too expensive: civilization in Europe was nearly destroyed by World Wars I and II. But the rise of militant nationalism meant that offensive wars to avenge imagined insults against the nation were conceivable, and were in fact fought with deadly skill and extraordinary enthusiasm. Just as the cautious, limited war politics of Bismarck was followed by the rash, total war politics of Hitler, so the cautious politics of Bush and Gorbachev may be followed by something else, that _ghts destructive wars for causes we can barely imagine, in the next century.
Governments will, in many corners of the world, continue to impoverish their peoples in the interest of securing the short-run power of the current régime. The number of such governments will with luck diminish. But they will not disappear. The anomaly in historical perspective is not rule by bureaucrats and soldiers interested in power and luxury, and not in economic growth. The anomaly in historical perspective is rule by merchants, industrialists, and workers who do have a primary interest in rapid economic growth. But governments will not stop economic growth altogether. There are too many countries with too many governments. Some of them will play the role of Britain in the nineteenth century or Holland in the 17 th , and become _rst homes for entrepreneurship and innovation and second objects of emulation by other nations.
Environmental degradation is the most likely problem to halt, or severely retard, economic growth in the twenty-_rst century. Market economies are excellent tools for _nding resources, superb incentive mechanisms for organizing production, but they are unlikely to be successful at preserving environmental quality. Industrial civilization now has reached the stage where its activities may well signi_cantly alter the world's climate in poorly understood ways. The market will be excellent at _nding scarce resources and at responding to demands generated by environmental change. But it will have no mechanism to balance off prosperity and sustainability.
Governments are unlikely to do much better. There are too many governments divided into too many factions with too many grievances against one another. Each government will bene_t only marginally from its own restraints on its people's pollution. Yet few governments will yield up enough of their sovereignty to allow for signi_cant sanctions to be applied to reduce pollution. The poor periphery will demand the right to use the dirty technologies the rich core used when it industrialized. The rich core will plead for cooperation on the grounds that sustaining the environment is a precondition for anyone's success. Mutually agreeable bargains are far from assured.
The twentieth century saw market economies generate immense wealth. The twenty-_rst century will see whether governments can agree on enough to sustain environmental quality. The odds do not appear to be as good as one would wish. Pre-industrial civilizations were for the most part unable to avoid running up against the limits of their available resources, no matter whether the most binding constraint was wood, land, or water supplies. It would be surprising if a group of governments, some governing very rich nations and others governing very poor nations, could do better and avoid running up to or over the edge of environmental catastrophe.
The twenty-_rst century will, if disaster is avoided, see material wealth de_ned as power over nature continue to increase rapidly, at least in the industrial core. Its end will be as much ahead of us in technological power as we are ahead of the end of the nineteenth century. And to the extent that this material wealththis power over natureis used to worthwhile ends, it will greatly enlarge the possibilities for human happiness just as the possibilities for human happiness today are much advanced over the late nineteenth century.
But the history of the twentieth century teaches us that material wealth, wealth understood as command over nature, is of limited use in building utopia. It is an essential prerequisite. But it is far from suf_cient. Of the four freedoms that Franklin Roosevelt thought ought to be every human's birthrightfreedom of speech, freedom of worship, freedom from want, and freedom from fearonly freedom from want is secured by material wealth. The others remain to be secured by other means.
John Maynard Keynes believed that increasing wealth would trigger a moral and psychological transformation: people would begin to concentrate not on producing more material wealth but on using their material wealth to attain psychological and social ends. After all: "the economic problemis not the permanent problem of the human race." Keynes thought that this would be obvious by the time society attained the levels of wealth that we have attained. Yet it is not obvious to us that the economic problem has been solved. The moral and psychological transformation that Keynes expected to see is not here, and there is no reason to believe that it will come.
The past century has seen the industrial core of the world economy move closer to utopia. Most people in industrial nations are richer, freer, better educated, and better able to plan their lives and accomplish their purposes than in any previous time or other place. Whether the next century will see still more progress is in our hands. Many things could stop it: war, environmental catastrophe, or the collapse of representative governments are clear possibilities. But another thing that could stop it would be if we do not use our wealth thoughtfully. Wealth, after all, is power to accomplish our goals. And goals are not always chosen wisely.
If John Maynard Keynes or Edward Bellamy could see us, they would see us as a mixture of extraordinary wealth and re_nement with brutal barbarity. Although we have far outstripped the imaginings of previous utopians in technology, we have not reached the level they expected in psychology or sociology. It has turned out to be much easier than expected to make humans rich, and harder than expected to make them wise. Multiplying wealth has been straightforward. Making people happy, or ending poverty has not.
Expect the same thing to hold at the end of the twenty-_rst century. The wealth required to feed, clothe, and educate everyone to the standards of the relatively rich in the twentieth century would consume only a small part of the resources available to the end of the twenty-_rst. But of our grandchildren, some will be homeless, and those who are bankers will still step over the sleeping bodies of those who are the homeless on their way to work. Those of our grandchildren who are rulers will still _nd building _ood shelters and levees a lower priority than subsidizing the army or accumulating foreign bank accounts against the day of their overthrow. And so _oods will still kill others of our grandchildren in the hundreds of thousands.
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