Adam Smith was not an economist. In the 1750s, when he was a professor at the University of Glasgow in his native Scotland, Smith served as the Chair of Moral Philosophy. The designation is telling. The rise of modern economics departments in universities was a late-nineteenth and twentieth century phenomenon. Economics in its infancy, characterized by the pursuits of Smith, Ricardo, John Stuart Mill, and Marx, was not a matter of graphs and econometric models. It was a broader investigation into social life, a look at how society structured labor, production, and exchange. And it concerned itself greatly with the ethical implications of this structure.
Warren Buffett, ranked by Forbes in 2008 as the world’s wealthiest man, is no moral philosopher. Yet he is capable of raising a tricky philosophical quandary. Reflecting on his tremendous riches, he has attributed his fortune largely to chance: “It just so happens that I was in the right place at the right time,” Buffett has said. “I really wouldn’t have made a difference if I were born in Bangladesh. Or if I was born here in 1700…. I just got lucky as hell…. Stick me [someplace else] and I could say I know how to allocate capital and value business. But they’d say, so what?”
In crediting luck, Buffett not only points to the birth lottery, in which some people are born into more privileged circumstances than others. He also recognizes that to a great extent he owes the accomplishments of his professional life to the manifold contributions of other people, known and unknown, past and present. They have collectively done Buffett enormous favors, affording him security and education, providing modern infrastructure, science, and communications systems, and creating a sophisticated market in which he could do business. Because of this, Buffett claims, “society is responsible for a very significant percentage of what I’ve earned.”
The issue raised by the billionaire forms the core of Gar Alperovitz and Lew Daly’s Unjust Deserts: How the Rich Are Taking Our Common Inheritance And Why We Should Take It Back. The authors start their book with the latter quote from Buffett, noting society’s tremendous contributions. Then they ask, “But if this is true, doesn’t society deserve a very significant share of what [Buffett] has received?”
The question indicates how thoroughly Alperovitz and Daly want their new book to upend commonplace notions about the relationships between economic growth, productivity, and wealth. Their premise, simply put, is this: Most of us with regular work lives get up in the morning, expend our energy and intelligence to meet a day’s challenges, and retire, depleted, in the evening. In this respect, we toil away our workdays just as subsistence farmers did for thousands of years. What makes us more “productive” than these forbearers—in the sense that they often struggled to ward off starvation, while we, relatively speaking, are surrounded by abundance—is not our individual strength, initiative, or daring. Rather, it is our inheritance of thousands of years of cultural knowledge, innovation, and discovery. Owing to this legacy, a person in the United States working the same number of hours as a past American from as recently as 1870 will produce, on average, some fifteen times more economic output.
As early as the 1950s, economists began establishing a greater role for socially accumulated knowledge in mainstream understandings of growth. During that decade, Nobel-Prize winning economist Robert Solow argued that advances in knowledge are, in fact, the primary driver of today’s growth. Alperovitz and Daly write, “Solow calculated that nearly 90 percent of productivity growth in the first half of the twentieth century (from 1909 to 1949) could only be attributed to ‘technological change in the broadest sense.'” This suggestion was a radical shift away from accounts that stressed the more specific agency of capitalists and entrepreneurs—or of laborers, for that matter—in expanding our economy.
Hearing such a theory, one might object that all this progress in the realm of science and technology would never happen without the grit and determination of our hard-working innovators. Because Alexander Graham Bell invented the telephone, a creation of tremendous social value, he deserves to be exalted as a genius and richly rewarded for his patent. Right?
Not necessarily. The telephone, as it turns out, was simultaneously invented by another innovator, Elisha Gray, who visited the patent office the same day as Bell with a superior design for transmitting vocal sounds, but who was behind him in the completing patent process. Five years earlier, an Italian immigrant named Antonio Meucci had declared the invention of a “voice telegraphy device”; he merely lacked the $10 required to legally register his work. With or without Bell, the telephone had arrived.
This example is not an isolated incident. As Alperovitz and Daly write, the pattern of simultaneous invention “is so obvious to modern scholars that it is no longer considered controversial.” New innovations rely upon thousands of previous advances in understanding and technical capability: “What is called an ‘invention,’ is always a combination of diverse constituent elements, mostly drawn from existing technology.”
The authors allow that people who are pushing at the edges of our knowledge should be given economic incentive to press forward. But it takes a lot of hubris for a modern inventor, far less an entrepreneur, to claim that his or her contributions are on par with those of past greats. As political scientist Robert Dahl pointedly asks, “Who has made a larger contribution to the operation of General Electric—its chief executives or Albert Einstein or Michael Faraday or Isaac Newton?”
Yet even as mainstream economists cite the increasing role of this socially accumulated legacy in driving our “knowledge economy,” inequality grows ever more severe. In 2004, the top 1 percent of American households holds almost half of all “non-retirement account stocks, mutual funds, and trusts,” and Bill Gates’s net worth alone “was more than twice the direct stock holdings of the entire bottom half of the U.S. population.”
Alperovitz and Daly cloak their argument in the language of the “new.” They cite “extraordinary developments” in the study of knowledge and economic growth as the foundation of their contentions. But they are actually returning the economic discussion to where it started, to moral philosophy’s debate about the values that should inform our public policy.
The foremost ethical question they raise is, given that we owe most of our productivity to a common social inheritance, to what extent can we say that we have “earned” our personal wealth? If we see far it is because we stand on the shoulders of giants, the argument goes. Therefore, a large portion what we claim as payment for our productivity should actually go to the Goliaths who are doing the heavy work of holding us up. Even if your eyesight is much better than average, your individual claim is limited.
While avoiding the Marxist tradition, Alperovitz and Daly find a long philosophical stream, running through John Locke, David Ricardo, and John Stuart Mill, that distinguishes between “earned” and “unearned” gains. “Nothing is more deeply held among ordinary people than the idea that a person is entitled to what he creates or his efforts produce,” the authors note. But if a person reaps gains through no effort of their own, society has a quite different view of their deservingness, or what philosophers know as “desert.”
One complication with the “standing on the shoulders” metaphor is that the “giants” in question are not discrete, living beings. Einstein and Faraday and Newton are not around to claim their cut of your paycheck. What’s left, then, is the state. Ultimately, what Alperovitz and Daly dub the “knowledge inheritance theory of distributive justice” offers a much deeper justification for government-imposed taxation than what Americans are normally challenged to consider.
The closest we have come to hearing these arguments in contemporary political debate was in the recent fight over the estate tax, a levy dubbed by conservatives as the “death tax” and by some defenders as the “Paris Hilton tax.” “Responsible wealth” advocate Chuck Collins, who wrote a book with Bill Gates, Sr. in defense of the estate tax has argued that the justice of such a tax is rooted in an appreciation of social contributions to prosperity, an idea that has been previously recognized in American political life.
In a recent volume entitled 10 Excellent Reasons Not to Hate Taxes, Collins quotes Andrew Carnegie, one of the key figures of our country’s first gilded age, who approved of taxing accumulated wealth: “Of all forms of taxation this seems the wisest,” Carnegie held. “Men who continue hoarding great sums all of their lives, the proper use of which for public ends would work good to the community from which it chiefly came, should be made to feel that the community, in the form of the State, cannot thus be deprived of its proper share.”
Suffice it to say, if Barack Obama’s innocuous suggestion that society might “spread the wealth around” earned him rabid denunciations from the right, Alperovitz and Daly’s arguments, if subjected to cable news scrutiny, would plant them firmly in the socialist motherland. In articles and in a book published in 2005, America Beyond Capitalism, Alperovitz has rejected the Statism he saw exemplified in the former Communist bloc, and he has expressed a desire to craft a progressive vision that “takes us beyond both traditional systems” of socialism and capitalism. Yet this type of “neither right nor left, but forward” rhetoric represents a fairly weak dodge.
The actual political tradition Alperovitz and Daly seek to revive has deep roots in classical economic writing and represents a long-established strand of non-Marxist socialism. The authors show sympathy for nineteenth-century American reformer Henry George, who drew an international following with his belief that land should be the common property of humanity. George promoted free trade and productive business, but he wanted state control of monopolies and argued in his best-selling Progress and Poverty for a steep tax on parasitic rent-seeking landlords. Alperovitz and Daly also align themselves with many of the leading lights of the Fabian Society, a group of British intellectuals who were influential in shaping the early Labour Party around the year 1900.
Just as unionists who believed in the productive power of labor were critical of Henry George’s sole focus on land, the leftward ranks of today’s political economists may be skeptical of the overwhelming weight of “knowledge” in Alperovitz and Daly’s formulations. But most would probably agree that the authors strike upon a vital topic when they highlight the need for the benefits from productivity gains to be shared throughout society.
As recently as the 1970s, there were discussions on college campuses of how people would while away all their spare hours after modern timesaving technology improved efficiency and inevitably shortened their working days. Since then, productivity has indeed increased dramatically, but working people have experienced a bitter twist: owing largely to the waning power of organized labor, real wages have been stagnant and hours at the office have only lengthened.
The Marxists of old criticized the gradualist tactics of Fabianism, accusing the British reformers of being naïve utopians who wanted socialist ends without the class struggle. Whatever the moral validity of Alperovitz and Daly’s argument about wealth, following through on its public policy implications will require long and hard fight. And it’s not clear from their book that the authors are up for a rumble. When it comes to how we might “take back our common inheritance,” their concluding call to arms tepidly invokes a “renewed moral and political understanding of [our] responsibilities.”
The best Alperovitz has suggested in his recent writings is that policy-makers concern themselves more with taxing wealth than income, and that they focus on going after the top 2 percent of households, leaving those few elites vastly outnumbered by the remaining 98 percent of the population. This is a sound position, but it is hardly a silver bullet. Current Democratic assurances that they will only hike rates for those in the very top tax brackets have done little to quell political resistance.
At the same time, the nation now seems uniquely prepared for a new debate about value and desert. Few moments could be riper for revisiting the connection between our economy and our social ethics. As housing values—the bedrock asset of the American middle class—fall, stocks plunge, and retirement investment accounts are wiped out, there is an acute awareness that things do not find their worth just in the market’s valuation on a given day. And even without unusually candid voices like Warren Buffett’s fanning their doubts, Americans have begun to conclude that CEOs are not so worthy as their bloated compensation packages suggest.
There is a growing consensus, too, in favor of a more robust public compact to regulate the conditions under which we are together able to live, save, and retire. Recent scholarly notions about “the developing trajectory of the knowledge economy” likely have less power than Alperovitz and Daly imagine to bring about a shift toward the social. But late in this new gilded age, a devalued and depressed American public may nevertheless be ready to demand more.