Abstract
Since Thomas Piketty’s Capital in the Twenty-First Century took the economics world by storm in 2014, the study of economic inequality has quickly moved to the centre of academic inquiry and public discourse. But why was the topic of inequality largely neglected by mainstream economists for so long? In examining key economic treatises and textbooks, this chapter argues that it was the hegemonic rise of neoclassical economics which effectively marginalized the issue of economic distribution by the second half of the twentieth century. It contends that three central theoretical pillars of neoclassical economics were most responsible for this development: marginal productivity, utility theory and Pareto optimality. While these pillars emerged in the Western world, the worldwide success of neoclassical economics in the second half of the twentieth century insured that the neglect of inequality would become a global phenomenon, from India to Israel, Germany to Chile.
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Notes
- 1.
Thomas Piketty, Capital in the 21st Century (Cambridge, MA: Harvard University Press, 2014); Branko Milanovic, Global Inequality: A New Approach for the Age of Globalization (Cambridge, MA: Harvard University Press, 2016); Peter H. Lindert and Jeffrey G. Williamson, Unequal Gains: American Growth and Inequality Since 1700 (Princeton: Princeton University Press, 2016); After Piketty: The Agenda for Economics and Inequality, eds. Heather Boushey, J. Bradford DeLong and Marshall Steinbaum (Cambridge, MA: Harvard University Press, 2017); Thomas Shapiro, Toxic Inequality: How America’s Wealth Gap Destroys Mobility, Deepens the Racial Divide, & Threatens Our Future (New York: Basic Books, 2017); Dean Baker, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (Washington, DC: Center for Economic Policy Research, 2016); Steven Teles and Lindsey Brink, The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality (New York: Oxford University Press, 2017); Brian Alexander, Glass House: The 1% Economy and the Shattering of the All-American Town (New York: St. Martin’s Press, 2017).
- 2.
Drew Schwartz, “Bernie Sanders is the Most Popular Politician in America, Poll Says,” Vice.com, Aug 25th, 2017; www.inequality.org/resources/organizations; Neil Irwin, “What Janet Yellen Said, and Didn’t Say, About Inequality,” New York Times, Oct 17, 2014.
- 3.
For the typical enthusiastic response to Piketty yet disagreement with r>g, see Paul Krugman, “Why We’re in a New Gilded Age”, New York Review of Books, May 8, 2014; James K. Galbraith, Kapital for the Twenty-First Century?” Dissent (Spring, 2014); to be sure, there are a number of important exceptions in which economists did study inequality in the twentieth century, although most remained outside the neoclassical mainstream. See the life’s work of Anthony Atkinson, including such works as The Economics of Inequality (New York: Oxford University Press, 1983); Claudia Goldin and Robert Margo, “The Great Compression: The Wage Structure in the United States at Mid-Century,” NBER Working Paper 3817 (August, 1991); James D. Smith, eds., Modeling the Distribution and Intergenerational Transmission of Wealth (Chicago: Chicago University Press, 1980); Amartya Sen, On Economic Inequality (Oxford: Oxford University Press, 1973).
- 4.
Anthony Atkinson, “Bringing Income Distribution in From the Cold,” The Economic Journal 107 (Mar, 1997): 297–231. For other works that have suggested that inequality was marginalized by economists in the twentieth century, see Daniel Hirschman, “Inventing The Economy: How We Learned To Stop Worrying and Love the GDP,” (PhD Dissertation, 2016), 158–206; Michele Alavich and Anna Soci, Inequality: A Short History (Brookings Institution Press, 2017), 29–53; Maurice Dobb, Theories of Value and Distribution Since Adam Smith: Ideology and Economic Theory (New York: Cambridge University Press, 1975).
- 5.
Alan Blinder, Toward an Economic Theory of Income Distribution (Cambridge, MA: MIT Press, 1974).
- 6.
Piketty, Capital, 11–15; Simon Kuznets, “Economic Growth and Income Inequality,” American Economic Review 45 (March, 1955): 1–28.
- 7.
Piketty, Capital, 16–17. Piketty, in fact, seems puzzled, noting that “oddly, no one has ever systematically pursued Kuznets work.”
- 8.
For the history of neoclassical economics, see Yuval Yonay, The Struggle for the Soul of Economics: Institutional and Neoclassical Economists in America Between the Wars (Princeton: Princeton University Press, 1998); Philip Mirowski, More Heat Than Light: Economics as Social Physics, Physics as Nature’s Economics (New York: Cambridge University Press, 1989); Eli Cook, “The Neoclassical Club: Irving Fisher and the Progressive Origins of Neo-liberalism,” Journal of the Gilded Age and Progressive Era; Jamie Morgan, ed. What is Neoclassical Economics? Debating the Origins, Meaning and Significance (New York: Routledge, 2016).
- 9.
Henry George, Progress and Poverty: An Inquiry into the Cause of Industrial Depression and of Increase of Want with Increase of Wealth (New York: 1879), 5.
- 10.
Samuel Hollander, Classical Economics (Oxford: Blackwell, 1987); Mark Blaug, Economic Theory in Retrospect (Cambridge: Cambridge University Press, 1997) ch. 2–7. Dobb, Theories of Value.
- 11.
David Ricardo, “Preface to Principles”, Piero Sraffa ed., The Works and Correspondence of David Ricardo (1951) 1: xlviii; John Stuart Mill, Principles of Political Economy, (London, 1871), 755.
- 12.
Edward Kellogg, Labor and Other Capital: The Rights of Each Secured and the Wrongs of Both Eradicated (New York, 1849), 80; see also James Huston, Securing the Fruits of Labor: The American Concept of Wealth Distribution, 1765–1900 (Baton Rouge: Louisiana State University Press, 1998); Michael Thompson, The Politics of Inequality: A Political History of the Idea of Economic Inequality in America (New York: Columbia University Press, 2007).
- 13.
Ricardo, On the Principles of Political Economy (London: Empiricus Books, 2006), 65; John Stuart Mill, Thornton on Labor Claims (London, 1869), 645.
- 14.
Frederic Bastiat, Economic Harmonies, George B. de Huszar, trans. and W. Hayden Boyers, ed. 1996. Library of Economics and Liberty. 11 February 2018. http://www.econlib.org/library/Bastiat/basHar7.html; on Europe, see Albert Lindemann, A History of European Socialism (New Haven: Yale University Press, 1984); on Marx’s theory of exploitation, see Karl Marx, Wage Labor and Capital, trans. Friedrich Engels (London, 1891).
- 15.
John Bates Clark, The Distribution of Wealth (New York, 1899) v; on Clark, see John F. Henry, John Bates Clark: The Making of a Neoclassical Economist (New York: Springer, 2016); Joseph Persky, The “Neoclassical Advent: American Economics at the Dawn of the 20th Century,” Journal of Economic Perspectives 14 (Winter, 2000): 95–108.
- 16.
Clark, Distribution of Wealth, vi.
- 17.
Ibid., viii; Frank Fetter, Capital, Interest and Rent: Essays in the Theory of Distribution (Menlo Park: The Institute for Humane Studies, 1977), 127.
- 18.
Nancy Cohen, The Reconstruction of American Liberalism (Chapel Hill: University of North Carolina Press, 2002), 279–285; Jon Levy, “Capital as Process and the History of Capitalism,” Business History Review (2017): 1–28.
- 19.
Irving Fisher, “An Address on the Irving Fisher Foundation, Sept. 11, 1946” in The Works of Irving Fisher, William J. Barber ed. (London: Pickering and Chatto, 1997) 1: 29. Earlier in his career, Fisher had placed a somewhat larger focus on inequality. See Fisher, “Economists in Public Service: Annual Address of the President,” The American Economic Review 9, no. 1 (Mar. 1919); Alfred Marshall, Principles of Economics (London: Macmillan, 1890), 335.
- 20.
Paul Samuelson, Economics: An Introductory Analysis, 7th edition (New York: McGraw-Hill, 1967), 521.
- 21.
On human capital, see Jacob Mincer, “Investment in Human Capital and Personal Income Distribution,” Journal of Political Economy 66, no. 4 (August 1958): 281–302; Gary Becker, Human Capital: A Theoretical and Empirical Analysis (Chicago: Chicago University Press, 1964); Sherwin Rosen, “Human Capital,” in The New Palgrave Dictionary of Economics, 2nd ed., ed. Steven N. Durlauf and Lawrence E. Blume (Basingstoke: Palgrave Macmillan, 2008).
- 22.
Richard Howey, The Rise of the Marginal Utility School, 1870–1889 (New York: Columbia University Press, 1989); Margaret Schabas, A World Ruled by Number: William Stanley Jevons and the Rise of Mathematical Economics (Princeton, NJ: Princeton University Press, 1990); Dorothy Ross, The Origins of American Social Science (New York: Cambridge University Press, 1991), 172–219.
- 23.
On the producer to consumer shift, see Lawrence Glickman, A Living Wage: American Workers and the Making of Consumer Society (Ithaca: Cornell University Press, 1999); Jeff Sklansky, The Soul’s Economy: Market Society and Selfhood in American Thought, 1820–1920 (Chapel Hill: University of North Carolina Press, 2002).
- 24.
Charles Spahr, An Essay on the Present Distribution of Wealth in the United States (Boston, 1896), 69.
- 25.
Richmond Mayo-Smith, “Review,” Political Science Quarterly 12 (1897): 346–348; Martin Feldstein, “Reducing Poverty, Not Inequality,” The Public Interest 137 (Fall, 1999).
- 26.
See Mark Bevir, “Sidney Webb: Utilitarianism, Positivism, and Social Democracy,” Journal of Modern History 74, no. 2 (June, 2002): 217–252; Yonay, Struggle for the Soul, chapter 9.
- 27.
AC Pigou, Economics of Welfare (London: Macmillan, 1920); see also A. Bergson, Essays in Normative Economics (Cambridge, MA: Harvard University Press, 1966).
- 28.
Vilfredo Pareto, Manual of Political Economy, trans. Ann Schwier (New York: AM Kelley, 1971); Joseph Schumpeter, “Vilfredo Pareto, 1848–1923,” Quarterly Journal of Economics 63 (May, 1949): 147–173; Maurice Dobb, Welfare Economics and the Economics of Socialism: Towards a Commonsense Critique (Cambridge: Cambridge University Press, 1975) 77.
- 29.
Pareto, Manual, 266–269, 451–452.
- 30.
Samuelson, Economics, 609; Samuelson goes on to state that this does not mean that Pareto optimality necessarily promotes the “public interest.” On first welfare theorem, see Allan Feldman, “Welfare Economics,” The New Palgrave Dictionary of Economics, Second Edition, eds. Steven Durlauf and Lawrence Blume (New York: Palgrave Macmillan, 2008); Joseph Stiglitz, “The Invisible Hand and Modern Welfare Economics, NBER working paper 3641 (March, 1991).
- 31.
On Lockean Liberalism, see C.B. Macpherson, The Political Theory of Possessive Individualism: Hobbes to Locke (Oxford: Clarendon Press, 1962).
- 32.
On Pigouvian Welfare Economics, see Ian Kumekawa, The First Serious Optimist: AC Pigou and the Birth of Welfare Economics (Princeton University Press, 2017); on the Paretian turn, see SAT Rizvi, “Postwar Neoclassical Economics,” in A Companion to the History of Economic Thought, ed. Warren J. Samuels, Jeff Biddle, and John Davis (Malden, MA: Blackwell, 2003), 377–395.
- 33.
Lord Robbins, “Interpersonal Comparisons of Utility,” Economic Journal (Dec 1938): 640–641; see also IMD Little, A Critique of Welfare Economics (Oxford: Clarendon Press, 1950) 55–56; on Robbins impact on neoclassical economics, see Thiago Dumont Oliveira and Carlos Eduardo Suprinyak, “The Nature and Significance of Lionel Robbins’ Methodological Individualism,” Economia (October, 2017).
- 34.
Roy Harrod, “Scope and Method of Economics,” The Economic Journal (Sept, 1938): 397; on the second welfare theorem, see Allan Feldman, “Welfare Economics,” The New Palgrave Dictionary of Economics, Second Edition, eds. Steven Durlauf and Lawrence Blume (New York: Palgrave Macmillan, 2008); Joseph Stiglitz, “The Invisible Hand and Modern Welfare Economics,” NBER working paper 3641 (March, 1991).
- 35.
Samuelson, Economics, 613.
- 36.
Irwin, “What Yellen Said,” New York Times; see also James Coleman, “Equality,” The New Palgrave Dictionary.
- 37.
On the reach and impact of Samuelson’s textbook, see Mark Skousen, “The Perseverance of Paul Samuelson’s Economics,” Journal of Economic Perspectives 11, no. 2 (Spring, 1997): 137–152. On the global spread of neoclassical economics, see Vincent Barnett, ed., Routledge Handbook of the History of Global Economic Thought (London: Routledge, 2014), 331, 91, 71–73. On the Eastern Bloc, see Johanna Bockman, Markets in the Name of Socialism: The Left-Wing Origins of Neoliberalism (Paolo Alto: Stanford University Press, 2014).
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Cook, E. (2019). Historicizing Piketty: The Fall and Rise of Inequality Economics. In: Christiansen, C.O., Jensen, S.L.B. (eds) Histories of Global Inequality. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-19163-4_2
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