Wealth Inequality Rocks

None can dispute that wealth inequality has become a hot topic. Of course, many economists have written about the issue; Ludwig von Mises has a cool, short article here and I adore Ben Powell’s short book Out of Poverty. However, many economists seem to relegate wealth inequality to some bane of existence, like traffic or Thomas Piketty. This leads many free-market proponents to merely defend wealth inequality as necessary, but not preferred.

I would suggest otherwise. That some individuals can amass more capital than others is an awesome feature of the economic progress we enjoy. As I understand critics of wealth inequality, too much concern is placed on relative incomes between arbitrary classes of people, as if whatever ratio they produce is inherently “bad.” As I plan to demonstrate, any uneven ratio of incomes would be (if anything) good

Richard Posner explains in a great 1970s paper a fundamental problem that humans have faced for millennia: that of protecting wealth. For folks of the 21st century, this concept seems largely foreign. Many don’t give a second thought to the protection of their property. Sure, you can call the police if a car is stolen. But how prosperous we are for that to be true!

As a thought experiment, imagine you were to visit Mars and discover a lone, sentient alien. Lucky you! Will you trade with it? Will you attempt to talk with it? Will you even go near it? If you desire life, your answer should be a resounding no. What incents the alien to keep you alive? You have no idea. That’s because the alien’s choices are not affected by human courts, police, norms, or opinions. Quite literally, it could steal all your property and leave. This is the issue that every person must resolve before pursuing cooperation with others, and our institutions develop constantly to ensure said cooperation. 

Posner uses this concept to discuss primitive societies. A fundamental issue with primitive society is that amassing wealth attracts theft. What could a person do if they, say, found a hoard of treasure? If they remotely indicate this to others, then the threat of theft is incredibly high because no overarching institutions narrowly define individuals’ property rights. They could hire bodyguards, but the bodyguards would have incentive to renege via appropriable quasi rents. Finding ways to peacefully cooperate has been the fundamental issue to humanity forever, and only through tedious innovation have we arrived at a state of the world where individuals have such specifically-defined and enforced property rights

In primitive societies, wealth inequality is exceedingly rare because of the constraints to wealth-building. If the Wright Brothers discovered flight in 1400 AD, there would be much lesser incentive to act on this information because wealth accumulation was constrained. That we can reward innovators for improving our lives (and reciprocally punish bad entrepreneurs) is a monumental achievement for humankind, not just an unfortunate state of affairs. Poorly-defined property rights and lower standards of living are inextricably (causally) linked, and critics of wealth inequality must assume this relationship away in arguing that wealth inequality is “bad.” An uneven ratio of incomes is necessary for feedback loops in resource allocation, and for merely demonstrating preference in a world wherein people prefer differently. 


Sam Branthoover is an economics PhD student at George Mason University.


Oct 28 2023 at 1:02pm

It seems to me that you have convincingly argued that some level of wealth inequality is good, but not that all levels or even the present level is necessarily good. The prototypical extreme example is, would it be good if one person controlled 99% of the wealth of society, and everyone else shared just 1%? I’d speculate that long before we got anywhere near that point, those social norms, courts, and police would stop functioning in the way they do currently. If there is a social contract, it must be seen in some way as fair, in order to maintain societal support.

So, complete equality seems bad, as it doesn’t incentivize the kind of risk taking and innovation that allows us all to get wealthier. But, complete inequality seems worse, both morally, but also pragmatically those with next to nothing don’t have the resources available to them to innovate and the one guy with everything, has little incentive to get more if you believe there is declining marginal utility to wealth at any scale.

Which, brings us to your 1400 AD example. Wealth accumulation wasn’t constrained during this period. Kings and the Church had great wealth compared to most of their subjects, it might be that the rules were such that an inventor had trouble capitalizing on their inventions, this just suggests that the rules and norms of that time were not well aligned to incentivize innovation, not that wealth inequality by itself is a good thing.

Oct 28 2023 at 4:07pm

I guess such people exist but I haven’t read people who say all wealth inequality is bad, just that there is some level at which you also see negative effects and that how the wealth inequality is obtained matters. Also, you do realize wealth inequality was in issue in 1400 its just that the royalty contoured the wealth. Edward III in particular was thought to be very wealthy. Given our celebrity culture seems pretty clear to me that wealth is often admired. Ever watch Lifestyles of the Rich and Famous?




john hare
Oct 29 2023 at 10:49am

There are sites where anger against the wealthy is rampant. Anti-billionaire rants fairly common. Sites like this have virtually none of that as it is mostly more aware people. Or, this site is somewhat of a silo in avoiding the irrational hatred of the successful. In person I have heard plenty of suggestions that the wealthy are evil and the gains are ill gotten almost by definition. Doctors should be happy with $100,000.00 a year and such. Don’t seem to hear it from successful people that have earned their way.

Ron Browning
Oct 29 2023 at 6:50am

Helmut Schoeck’s “Envy: A Theory of Social Behavior” is a good read to inform this subject.

Oct 30 2023 at 1:34am

Per Hayek the important thing is several property which is the case when property is widely distributed. The wide distribution of property is the key for wide distribution of power in the society and hence a necessary bulwark against tyranny.

Interestingly, this notion of several property is the same as the notion of Distributionism espoused by Catholic writers Chesterton and Belloc who get a bad press among free market writers who find this notion redolent of socialism.

Mike L
Nov 4 2023 at 9:26am

“Markets are a force of nature”-Timothy Taylor. I assume this includes labor markets. I find it hard to believe that a top down system of wage/salary control would be any different than other types of price controls.

Comments are closed.


Anyone interested in money should check out JP Koning's excellent blog.  In a post discussing the ECB's decision to stop producing 500-euro banknotes, Koning made this claim:   This highlights an important point that I often mention on this blog. One of the most popular motifs of central banks is that they print ...

Read More

Here are some highlights from my weekly reading. Colin Grabow, "United States Remains a Manufacturing Powerhouse," Cato at Liberty, October 25, 2023. Excerpt: Simply put, the United States remains a manufacturing powerhouse. In 2020 it was the world’s fourth‐​largest steel producer and in 2021 was the...

Read More

None can dispute that wealth inequality has become a hot topic. Of course, many economists have written about the issue; Ludwig von Mises has a cool, short article here and I adore Ben Powell’s short book Out of Poverty. However, many economists seem to relegate wealth inequality to some bane of existence, like traff...

Read More