Growth and Inequality in the Financial System

Abstract

Wealth will enable management-level employees to raise their earnings above what they would otherwise be. They will save more out of their earnings from work and out of the profits of their capital than ordinary workers will save out of their earnings from labor and their profits from their (much less) capital. These points can be put together into a simple model, which shows that the working of the financial system will steadily lead to greater and greater inequality. This will interact with the real side of the economy—the next chapter.

[A]s society grows, the disposition to continue previous social adjustments tends to lodge this collective power, as it arises, in hands of a portion of the community; and this unequal distribution of the wealth and power gained as society advances tends to produce greater inequality, since aggression grows by what it feeds upon, and the idea of justice is blurred by the habitual toleration of injustice.

—Henry George