The State and Wealth Redistribution

 

The state’s role as an agent of redistributing income from the bottom up using the fiscal structure is one that has occupied many writers, politicians, trade unionists, activists, etc. since the 18th century when bourgeois propagandists of the Third Estate raised the issue. In short, there is an abundance of literature on this topic from disparate ideological perspectives, some rooted in classical economists’ works (Adam Smith to Karl Marx), others, on Joseph Schumpeter, John M. Keynes, Milton Friedman, and the whole list of more recent Nobel Prize winners. 

 

The fundamental question is who produces wealth, who owns it, and who redistributes it? If we accept, as everyone from Adam Smith to Milton Friedman has accepted, that capital alone produces wealth, and that the state imposing taxes on capital is a form of appropriation of private property, then of course we must accept that the state is an agent of labor whose contribution to the economy is determined by capital. 

 

Given such assumptions, laborers are a burden not only on social security but on all social programs, because capital produces wealth taxed by the state that redistributes it downward to labor. In response to Thomas Malthus’s theory about the root causes of poverty, Robert Owen, nineteenth-century manufacturer and analyst of industrial capitalism, rejected the assumptions of Malthus regarding Smith’s contention about wealth creation. Owen took into account the “appropriation process” involved in capital-labor relationship that neither Smith nor Malthus had considered. 

 

As much in the 19th century as today in many countries and for unskilled labor, the owner of capital determines worker’s compensation not on the basis of value created, but on “subsistence wage theory”–what we call minimum wage but justify it as “market conditions.” The appropriation theory is at the heart of the debate about what social group(s) creates wealth, what group(s) accumulates it, and how the state redistributes it through the fiscal system. If labor is the catalyst to capital creation, as I believe it is, then labor creates state revenue, but the political elites redistribute it to benefit the upper class. 

 

The issue of income distribution and the state’s role had arisen even as early as the German Peasant’s War in the 1520s. Inspired by Martin Luther’s teachings, Thomas Munzer led a rebellion amid inflation and hard economic times against the Germanic states controlled by the aristocracy and upper clergy that produced nothing but owned most of the wealth and benefited from taxes on the masses. In the 18th century the French intelligentsia complained that the aristocracy was parasitic because it lived off the labor and taxes from the middle and lower classes (Third Estate), while enjoying political, legal, and social privileges–occupying the lucrative positions in government when in reality educated middle class civil servants and workers carried out the work. 

 

In the 19th century, the British Parliament often debated the issue that also concerned Continental European governments coming under social pressures, especially after the revolutions of 1830 and 1848. Did Otto von Bismarck, a Prussian Junker who detested the German Social Democrats, adopt a social security program because he believed in returning some of the wealth appropriated by capitalists from workers; or did he do it because it was the only means to deprive the leftist party of an issue, de-radicalize German workers, and proceed with his blood & iron policy of making Germany the strongest land-based power on the continent–all an integral part of Realpolitik? 

 

And why did FDR adopt a social security program? Was it because he saw the issue as the unions and many professionals from doctors to academics, or because it was politically, socially, and economically the prudent thing to do, especially when the country was suffering economic dislocation and radicalization of the masses that his policies contained by co-opting the left? Whose money was it anyway that the government returned in the form of very modest social security benefits at the time when retirement age was the same as average life expectancy?

Ultimately, to arrive at a better understanding of this issue we must examine the issue of who decides the value of labor in New York or Lagos, Nigeria. Why is it that the labor value of an AIG insurance worker worth just a small fraction of the value of corporate management responsible for the company’s mismanagement that so far has resulted in $150 billion bailout of taxpayer money? Milton Friedman always answered that the market decides. But who decides about the market, God or those who control the market? 

 

This is an issue that European and US governments are addressing as they are handing out trillions–wealth expected to be produced by the middle class and workers–to corporations to save the system that the financial elites (the not-so invisible hand of the market) have bankrupted with the state’s considerable acquiescence.

Every generation believes that it lives in unique times, and we are no different in this epoch of anxieties as Paul Tillich and Carl Jung so brilliantly observed about 20th-century man. There are very serious structural problems in the market economy and appearances to the contrary, government responses to this crisis will not and cannot simply be limited to bailouts of banks and other industries only to revive them so we find ourselves right back where we are now with the same institutional and social problems. 

 

To lessen the length and breadth of inevitable cyclical recessions in the market economy, systemic readjustments will be needed that include every sector from defense and security, to health, education, and environment. Above all, of course there will be, as it must to avoid serious problems in the future, a reexamination of the fiscal structure currently designed to redistribute wealth from the bottom 90% to the top 10 percent of the population. Such concentration is the source of the problem today as it was in previous economic dislocations.