Explaining Not Change: Inequality in the 19th-20th Century

So, I’ve started reading a classic, Joseph Schumpeter’s 1942 Capitalism, Socialism, and Democracy. At the beginning of part II, as Schumpeter begins to explain why he believes capitalism is doomed, he starts with some historical data on national incomes and other macro indicators including inequality. In order to refute the arguments by some economists (including Marx and his followers) that capitalism leads to a natural increase in inequality, Schumpeter argues that inequality data show no change in inequality in the 19th and early 20th century, and thus “there is no such tendency… There is, so long as we are discussing what the capitalist engine might do if left to itself, no reason to believe that the distribution of incomes or the dispersion about our average would in 1978 be significantly different from what it was in 1928.” (65-66)

A number of things interest me in this quote. The first is the ability to contemplate the “capitalist engine” as a thing apart, with natural tendencies. Capitalism has a teleology, one that will continue unabated if ‘left to itself’. This conceptualization fits within the logic of Marx, of course, but also that of contemporary and classical economics. Both groups rely on capitalism as an engine along a track, and that track must be separate from social or political institutions. In Polanyi’s terms, the economic sphere here is seen as disembedded from the social, with a life of its own.

The second, more specific, thing that interests me in this quote is the consequence of the first – because capitalism has natural tendencies and directions, the lack of change implies that “there is no such tendency” towards inequality. Schumpeter’s logic implies that if there were a tendency towards increasing inequality within the capitalist engine, it would have been observed in the years where data was available. But even if we accept the separation of the political, social and economic, this logic does not necessarily follow – it could be that the natural tendency of capitalism is towards increasing inequality, but that countervailing political forces prevented this inequality from obtaining. There could be a natural tendency towards decreasing inequality inherent in democratic institutions, say. The burden of proof, however, seems to be on those predicting change. So my question is, when does no change constitute a phenomenon that calls for explanation? That is, when do we expect change strongly enough to require a theory for stability?

I wonder how much contemporary social science overemphasizes change and underemphasizes stability. Some of the most interesting phenomena are those that are most stable, but their stability is not necessarily a simple or natural affair. For example, for many years productivity and wage growth were linked. This linkage was considered something of an economic law. Then, in the second half of the 20th century, the linkage broke down. Productivity kept climbing, but wages did not. What happened? Some combination of changes in social and political institutions (unions, progressive taxation regimes, etc.) decreased the ability of workers to demand a wage proportional to their productivity. Was this the natural tendency of capitalism finally coming to the fore?

I do not believe so, because I do not believe capitalism is a thing that can have natural tendencies. But within Schumpeter’s logic, it might make the most sense. Hmm. Also, I wonder if Schumpeter’s finding still holds up – is it still the contemporary belief that income inequality did not increase in the entire 19th century?

Anyway, final thought: I wonder what famous studies, if any, are ones that found stability when change was expected? Or, perhaps, explained an expected stability in compelling but unexpected terms?

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