A recent Huffington Post article alerted me to a paper by UC Berkeley professor Emmanuel Saez, showing that income inequality is greater as of 2007 than ever before in American history.  In fact, as of 2007, the top 0.01% of Americans took home 6% of total U.S. wages.  Why is inequality important?

In addition to the obvious fact that inequality between individuals affects their life chances and ability to satisfy their goals and meet their needs, it also represents something.  Inequality between people represents the valuation of their human worth.  If all individuals’ worth is absolute, i.e. independent of anything they do and wholly because they are, then there would be no inequality.  Look at it this way–if the worth of individuals were equal, and independent of what they’ve done, there would never be any reason for unequal distribution of wealth.  If you doubt this, try to think of a way it could be differential (except for accident, and in case of such an accident, equal valuation would likely result in immediate rectification of such momentary inequality).

But it is cannot be said that inequality represents society’s valuation of different individuals’ worth, because society does not choose the distribution of income or the distribution of property. In all societies but the very earliest communal ones, certain classes have had control over the means of production (i.e. tools and raw materials), and these property relationships have been protected by force and justified by the ideologies of their time.  In class societies, including our own, only the dominant class have the ability to determine who gets what job and what they get paid.  Ideological defenders of capitalism claim that supply and demand determine everything, from jobs (where social demand for a job creates it) to income (where the social valuation of the job determines how much it gets monetarily rewarded).  This picture hides a number of factors.  First, it hides that only ‘effective demand’ gets met.  Effective demand is demand backed by the money to compensate the supplier.  Thus, production under capitalism is not intended to meet needs.  Commodities are produced only when, and insofar as they might realize profits for their ‘owner’. If capitalism meets needs, then, it is purely a coincidence.  An accident.  Thus, jobs aren’t necessarily created because the jobs are socially valued or needed, but because their existence makes money for capitalists.  Same goes for income; capitalists pay employees as little as they can get away with while maximizing profit.  They will thus supply however much they think they can get a profit from, and the more money an individual is willing and able to pay to get a good or service, the more suppliers will fight to produce for that market, regardless of the good.  When an economist explains production and jobs according to supply and demand, they really mean to explain it in terms of money, but that directs the question towards one of inequality and needs, which is precisely what a capitalist economist wants to gloss over and assume away. 

Additionally, discussion of ‘supply and demand’ does not address the ‘rate of profit’.  Capitalists mark up the product from its cost of production, but that does not explain how the amount of this markup is determined.  In more competitive markets, profits tend to be lower, and in more monopolized markets profits tend to be higher, but in neither type of market does supply and demand strictly determine the rate of profit.  They tend to be unofficially standardized according to industry, but the process of their standardization has nothing whatsoever to do with supply or demand.  We cannot really explain anything but the most inconsequential facets of our economic system with the concepts of supply and demand.  It is only useful to tell us that the more suppliers per demands, the more relative power potential consumers have, and the fewer suppliers per demands, the more relative power suppliers have.  They don’t themselves explain the creation of jobs or the distribution of income, they only implicitly relate to the concept of power, and they certainly do not reflect need or the will of society as a whole.

Distribution of income, then, reflects the valuation of human worth according to the dominant class in a society, the capitalists in our own.  More specifically, it rewards them according to the function they serve for the dominant class, and how hard it is for capitalists to fill those necessary functions.  Inequality exists, then, because the capitalists (considered as a whole) devalue the worth of the people towards the bottom of the income ladder (relative to the perceived value of their social function), and value the worth of those towards to top more.  This generic formula rings true for labor; the very top tends to consist of capitalists themselves, and class conflict can generate income and benefits for labor with some independence from the valuation of their labor by the capitalists themselves.  This is so because class-conscious laborers can unify as laborers to restrict the supply of their labor, thus giving them greater power, or unify as citizens to enact legislation which will produce similar effects.  In the absence of strong class consciousness on the part of labor, any laborers wages and benefits are as low as capitalists can get away with.

Thus, this inequality is purely the product of class in American society.  It is a combination of the (1) class power of capitalists over society, (2) low valuation of the human worth of those towards the bottom of the economic latter (where laborers, as we have shown, have no inherent worth to capitalists, but only instrumental value), and (3) low class power, revealing their relative absence of class consciousness and unity. It does not reflect nature, or inequality of ability.  It is the result of class society, of capitalism, and the only way out is not a welfare capitalist state, but a postcapitalist (decentralized, democratic, participatory and planned) socialism.

Huffington Post: “Income Inequality is at an All-Time High” – http://www.huffingtonpost.com/2009/08/14/income-inequality-is-at-a_n_259516.html