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This paper looks at both within and among country inequality data for the 82 countries for which comparable data are available from the 1996 World Development Report. In the spirit of Dalton (1920) and Atkinson (1970), this paper reports estimates of the welfare loss arising from inequality. The paper also explores the implications of Duesenberry style interdependent utility functions and evaluates the appropriateness of the Gini coefficient as a possible measure of “relative deprivation.” In 18% of the pair wise comparisons of inequality in different countries, the situation is ambiguous in the sense that neither country Lorenz dominates the other (Shorrocks, 1982). Generalized Lorenz curves leave ambiguous 16% of paired welfare comparisons. The data generated a surprisingly stable empirical result: for any utility function satisfying Dalton’s Principle of Proportionality of Transfers, the loss of welfare rising from within country inequality is approximately 40% of the loss caused by inequality among nations.

One of the problems with the mechanistic approach which has dominated mainstream economic thought since the late 19th century is its neglect of the social and socio-psychological context in which the economic system functions. It simply assumes that people behave in the same way at all times and everywhere. This assumption is not restricted to economics. John Rawls developed an entire theory of justice on the basis of the idea that if choices are made without the chooser being aware of the eventual consequences of his choice for himself personally his choice would be “fair”. What Rawls is taking for granted is Aristotle’s assumption that it is “a peculiarity of men that they possess a sense of the just and the unjust”. Willy-nilly this implies that what he or the current American middle class assumes to be fair is fair. Aristotle believed that this “common understanding of justice as fairness makes a constitutional democracy,” and that “the basic liberties of a democratic regime are most firmly secured by this conception of justice”. Aristotle lived in a society which accepted slavery as a normal condition. Had Rawls lived in another era, or even today in a tribal West African environment, he would hardly have adopted this kind of assumption. To believe that behind the “veil of ignorance” (that is, ignorance about their own position in society) people would elect to live in a society in which each individual enjoys equal rights, and inequalities would only be justified on the basis of competition and in so far as they operate to everyone’s advantage, presupposes an egalitarian competitive culture in which changes in inequality can be justified only if they do not reduce the welfare of the worst-off. But this was the specific historical product of postwar Capitalism. Take out this presupposition and Rawlsian justice becomes a travesty. As said before, an egalitarian society is not inscribed into any historical plan, and people consider “just” what they have been accustomed to regard as such. The same is true for competition. Members of Guilds did not and were not allowed to compete with each other. They did not find their places in society on the basis of economic competitive proficiency. Kings were born into their status and their privileges were considered fair. Tribal chiefs are selected from particular families and their elevated social position is taken to be self-evident.

The economists of the era of Regulated Capitalism recognized that a person’s income depends on a great variety of factors of which many have little if anything to do with market forces. Nobody denied that the entire income structure might rise or fall with the varying fortunes of the economic system, but this does not mean that personal or household income differentials will remain the same. They depend on initial wealth, on sex, profession, education, personal ability and status, in short on the customs and traditions of society. Sometimes they are influenced by market forces and other times market forces are influenced by them. But they have a direct effect on aggregate expenditure and through this on the overall volumes of saving and investment and on the rate of economic growth.

Another problem which has plagued markets and mainstream economic theory is Monopoly or Oligopoly. In practice, though with only limited success, monopoly has been subjected to a great volume of corrective legislation. One difficulty was how to distinguish between natural and administered monopoly, and another how to deal with firms which, though they are acting independently, are aware of their mutual interdependence of sales, production, investment and even advertising plans, and arrive at their decisions on the basis of the expected behaviour of their rivals. These problems were recognized and some neoclassical models were designed to take account of them and even of extreme situations when rivalry is replaced by co-operation and collusion. It can therefore not be said that neoclassical price theory ignored monopoly and oligopoly, but it treated them as the exception, not the rule. In reality however, oligopoly is no longer an anomaly.

The growing affluence in the first decades of the post-war era provided employers and the middle class with enough financial reserves not to be fearful of the worst, and gave workers the feeling that they were sufficiently protected by Labour Unions, social legislation, and their power at the ballot box not to be inordinately concerned about their future. Before long the “dual mechanism” driving force began to weaken; greed was taking the place of fear and complicity the place of solidarity. But greed is not like fear, it is a different kind of fuel, and when the ownership of means of production becomes divorced from their management it affects the economic mechanisms in another way.

Economists and other social scientists have recently been heard to say that they are not interested in truth; that what matters is that their papers are interesting, persuasive, or suggesting new ideas. The purpose of this chapter is to outline some of the developments in philosophy and the sciences which led to this devaluation of the concept truth and to throw light on the consequences of abandoning it. It is needless to say that the limited purpose of this chapter imposes on the discussion some inevitable simplifications which would be unacceptable in a more complete historical survey. The intention here is to draw attention to the connection between the scientific approach in different disciplines which may have affected the historical observations in the preceding chapters.

The mechanisms by which the national income is distributed between consumption and investment in the Free Enterprise system is competition. Taking for granted that the incentive to invest in the private sector is the expectation of profit, and that capitalists are rational people, it is clear that sustained investment requires that effective demand must eventually suffice to satisfy this expectation. This means that, allowing for some time-lags, full employment requires effective demand for consumption and investment to match or exceed the rate of accretion of the labour force and the rate at which technological innovation is increasing productivity. Under perfect competition an excess of labour would reduce wages and an excess of produce would reduce prices. Lower prices would increase real incomes and spending, and the ensuing greater velocity of money circulation would cause prices to rise again and revive investment and employment. This, in a nutshell, is the Real-Balance or Pigou effect. Without going into the question whether this would really be the sequence of events or if it would only happen when banks have reached the limit of their lending capacity, one thing is fairly certain, namely that it can only apply to an idealized and not to a actual Free Market system. In reality, when consumer demand continues for a lengthy period to fall below producers’ output, incentives to invest and to employ more labour will diminish; and if demand exceeds output, prices rise and inflation may be leading toward economic entropy. As profit expectations are prospective they may or may not be influenced by past and current experience, but usually an experienced rise in demand for goods and services tends to induce investment, and economic stagnation or falling demand to discourage it. Normally, if potential investors assume that the stagnation or diminution in demand is transient they may wish to take advantage of the lower interest rates and reduced cost of other resources to renew or supplement their stock. If they suspect that the recession will be lasting they will hold back, and the accent in technological improvements will shift from product innovation toward labour cost or other costs reducing process innovation. The only exception is the case when a potential investor has some completely new invention of a product in hand which is not merely replacing another but opens up a novel market.

If truth is related to objectivity, and an objective description in the natural sciences is defined as a description from which the effect of the external world on the human senses has been “calculated away”, it is clear that the concept of truth to be adopted in human affairs cannot be the same as in the natural sciences. The concept of truth to be adopted (as explained in the previous chapter) has to do with the methods of ascertaining, or the reasons for believing, that something is true. In fact, realist philosophers and sociologists who believe that it is possible to describe social structures objectively have known (before Habermas explained why) that a predominant social theory at any particular time may be not so much incorrect as socially lopsided. Marxist theory, for example, claims to have shown that capitalist economics only describes that part of reality which is of interest to the dominant class to which the influential intellectual also belongs. According to Habermas, or socialist writers, a more genuine theory ought to include as well the conditions and social relations that are of interest to other classes. In this vein one could stress today that a social theory ought to include conditions of interest for example to women, ethnic minorities or homosexuals. With such a perception, which emphasizes the relation between a social science and social reality, the creation of a new theory can be seen as an expansion of the phenomena brought under conscious review in the same way as Einstein saw it with regard to physics. The expansion in social science, as pragmatists and Habermas maintain, means that account must be taken of neglected or suppressed desires and beliefs, of desires and beliefs other than the dominant ones.

In real terms everything that is produced is either intended for direct consumption or for helping to produce what is wanted for direct consumption more efficiently. When the fruits of production satisfy a human need directly they are termed consumer goods and when their contribution is indirect they are termed capital. A tractor is a capital good because it only helps to produce bread with greater efficiency. Capital can therefore be defined as a factor of production representing produced goods which are used as factor inputs for further production. This means that the entire output of a society is the sum of all the consumer goods and capital goods produced by it. As the efficiency of production, that is productivity, greatly depends on the availability and quality of the supply of capital goods, the accumulation and improvement of capital is a crucial determinant of a society’s material affluence. But as with the given resources the production of capital can only increase at the expense of less production of consumer goods it always reflects a choice between the satisfaction of present wants and the better satisfaction of these and additional wants in the future. This can be compared to a household’s decision whether to spend the entire monthly family earnings on good living or to save part of it and invest it in an asset, say a lorry or good education for the children, to increase the family earnings at some future time.

To illustrate the anthropological approach to science one may consider Latour’s following analysis. For him a scientific fact receives its significance only within the socially-structured practice of its study. Crystallography, he claims, could hardly have evolved without such social institutions as museums in which crystal collections are preserved. In his opinion the question whether crystals would not also exist in nature if they were not collected is irrelevant, or even “illegitimate”, because without the institutions which collect them they would remain unknown. Similarly, an apparently simple statement like that in “naked” nature water freezes at zero degrees centigrade would have remained meaningless without the creation of thermometers and without the incorporation of this so-called fact into our everyday life. It is only the socially-acquired meaning of measuring temperature which turns the statement into an undisputed fact. And again, since 1930 when Pluto was discovered we know of the planet’s existence and we know that it had also existed before this date. But this knowledge became significant only because it was brought into our world by further research about its satellites and atmosphere etc. In other words, without becoming part of our socially-organized world all such facts would not have become part of the phenomena (which means by definition the observed world) that science purports to describe. To think of crystals, scientific laws or planets existing independently of whether we know about them or not simply repudiates the contribution of scientists to knowledge.

In summary, what distinguished liberal or democratic capitalism from other systems was its ability to internalize most opposition. Treating labour as a factor of production whose price is determined by demand and supply in the market place, and regarding trade unions as monopolists, it transformed class struggle into wage negotiations. It allowed labour to oppose inequity but only on the system’s own terms, that is as long as the system itself remained unchallenged. Similarly, liberal capitalism did not crush symbols of discontent. It internalized them by making them into a part of the system. Long hair, protest songs, even “subversive” literature, were not prohibited, but turned into fashions. In economics the discussion of real issues was sidestepped by focusing attention on technicalities. Keynes was not rejected but incorporated into a “neoclassical synthesis” which reduced his ideas into a “special case” within the old paradigm. Opposition which could not be internalized, for example questions about the rationality of the system itself, was placed beyond the pale. It was subjected to the establishment’s powers of “repressive toleration”. No mass arrests or executions; smear campaigns against Churchmen and Berufsverbote against socially committed active people (teachers in particular) were equally effective. Just like its communist counterpart in the eastern bloc, the capitalist oligarchy discovered that compliant and unimaginative people can serve it best. Democracy remained intact, but the mechanisms which make it meaningful gradually wore out.

Perhaps the most interesting descendant of the eighteenth century French theoretical economic tradition was Leon Walras (1834–1910). His work went almost unnoticed during his lifetime, not only because he presented his findings in mathematical terms (which was not in fashion with the economics profession of the time), but also because of his political ambiguous position. He claimed that Free Market economics presents as working well a system which works badly, and that Marxism presents a system which will not work at all. “Certainly economists have not demonstrated scientifically the principle of free competition. Fortunately for them free competition organizes production more or less well. In going into ecstasies over the admirable manner in which it does this they regard their task as accomplished. But socialism must proceed differently. It must distinguish itself from economism [the Free Market paradigm] above all in its knowledge of political economy, and it must explain why and how this or that principle will lead to and maintain equilibrium of the demand and supply for services and products. In doing this it will advance from the literary to the scientific stage. This is what the collectivism of Marx fails to do.”

Keynes and the protagonists of Regulated Capitalism where not unaware of the role of government, but underrated its function when more and more collective services became necessary to sustain the increasingly complex economic structure, and they overrated its powers to exercise control over an economy which was rapidly becoming internationalized. Their models visualized something like a closed economy, a system with a large measure of autarchy topped up by imports and exports that tend to equilibrate through monetary fluctuations which, under extreme circumstances, could perhaps be adjusted by currency devaluations or revaluations. They believed that on the whole the system inclines toward equilibrium either with or without full employment. Keynes himself was of the opinion that real wages and not money wages determine the volume of employment, that the level of national income and not the rate of interest determines investment and employment, that profit expectations and not the current rate of interest is the prime cause of investment, and that the equality of savings and investment does not imply that the economic system can only be in equilibrium when there is full employment. His followers were more sceptical than he was about the last point, but accepted that “exogenous” forces, such as Union-administered “sticky wages”, could prevent the inherently equilibrating mechanism of the system from restoring full employment. But neither Keynes, nor his followers who dominated economic thought in the period of regulation, appreciated that with the proliferation of the public services provided by the state and with the internationalization of the world economy new powerful forces were coming upon the stage, the former is not subject to the mechanisms governing the market and the latter deprives the state of adequate power for their regulation.

Given that the Free Market does not provide a mechanism which adjusts the short term needs of individual enterprises to their long term collective requirements, and assuming that the state can perform this coordinating task, the question arises in what proportions the national product must be divided between the private sector and the state. The simple answer is in such manner that, with full employment, increasing productivity is precisely matched by increasing effective demand for goods and services. Under conditions of perfect competition this would be more or less the outcome of the income effect of falling prices. Increasing productivity would reduce production cost and competition would decrease prices and thus raise overall demand. In the real world of imperfect competition this is the exception rather than the rule.

Services are activities for which there is a demand and price: they are intangible goods usually “consumed” at the point of their production. They are not transferable, which means that they cannot be bought and later sold at another price. The reason why economists showed little interest in the study of services can perhaps be explained by a bias, dating back to Adam Smith, that mechanization, which is the key to productivity, had little or no role to play in them. Another reason may be that as economic theory focused on the competitive market-place and many services are anchored in the public rather than the private sector, it was thought that they have little to contribute to the understanding of the economic system. This was what Eli Ginzberg believed in 1982. But this alone can hardly account for the “oversight” after 1982, when services were invaded by the new communication technology. Therefore there must have been more weighty reasons for the relative neglect of services by the economics profession. The likely reasons, in addition to Ginzberg’s, are the difficulty of incorporating the service sector into the neoclassical paradigm, and perhaps the recognition that its positioning in the economic system has important political implications. If it is admitted that services are no less productive than the other sectors, then the contribution of the public sector (approximately one third of employment and a quarter of GNP) which is mostly in services, must also be acknowledged. But then, public expenditure can hardly be written off as money “wasted”, and the entire indomitable campaign against “excessive” taxes loses its veneer of common sense.

What have been described here in economics and in philosophy are the symptoms of a loss of direction; the engine has stopped, the boat is drifting. For centuries the West, and particularly the west of the West from which intellectual changes spread, had turned its eyes to the morrow and eagerly embraced change, and by this it marked itself off from earlier and alternative cultures. From Wagner’s Zukunftsmusik through Rimbaud’s cry “Il faut etre absolument moderne” and a papal Rerum Novarum the new, the revolutionary, the forward-looking, indeed the future-hailing was the common theme of otherwise quite disparate movements. By the 1890s these were fully fledged; symbolically, Walter Crane’s Hope greeted the rising sun with outstretched arms. By the 1920s they were everywhere triumphing, and not only among the young. The names they had given rise to were affirmative, all-embracing, programmatic; Positivism and Futurism, L’Humanite and Vorwarts, beyond-the-real Surrealisme, Cubism and Vorticism, Modern Dance, Modern Linguistics, Modern Architecture, Free Schools, and free love.

In this article the author questions the proposition that an ‘invisible hand’ leads to an equitable income distribution. He asserts that competition encourages economic growth but only under specific circumstances. He suggests that inherent in capitalism’s competitive individualism are the seeds of a socially divisive new type of feudalism and economic stagnation.

List of figures List of tables Preface 1. Introduction Hartmut Kaelble and Mark Thomas 2. British inequality during the Industrial Revolution: accounting for the Kuznets curve Jeffrey G. Williamson 3. Wage differentials in Sweden, 1725-1950 Johan Soederberg 4. Industrial wage differentials in nineteenth-century Belgium Peter Scholliers 5. Income inequality and industrialization in Germany, 1850-1913: the Kuznets hypothesis re-examined Rolf Dumke 6. The evolution of inequality in Australia in the nineteenth century Mark Thomas 7. Gainful occupations and the inequality of pay: Vienna, 1780-1980 Michael Wagner 8. The distributional impact of the depression in the United States Ian W. McLean 9. Toward a comparative history of income and wealth inequality Peter H. Lindert References Index.

(1982). Economic Thought and Social Change. Journal of Economic Issues: Vol. 16, No. 1, pp. 319-324.

In an earlier article I tried to elucidate the rise in the English price level during the first half of the sixteenth century.1 The present article deals with the extension of this rise from the time when the coinage was reformed, near the middle of the sixteenth century, until it came to an end during the second quarter of the seventeenth century. Beginning with the apparently most obvious explanation, namely the relative depreciation of the value of money, a causal connexion between the influx of American silver into Europe and the rise in the English price level can be assumed from the following table.

The 'Fighters for the Freedom of Israel', commonly known as the 'Stern Gang,' was one of three Jewish paramilitary organisations operating in Palestine during the years between World War II and the establishment of the State of Israel in 1948. The common origin of all three organisations; 'Haganah', 'Irgun', and the 'Stern Gang,' was the Jewish Defense Organization (Haganah) which was created during the Arab disturbances in 1929. When another Arab uprising against the British Mandatory Government in Palestine began in 1936, the right wing of the Jewish Defence Organisation disagreed with the general policy of mere defence laid down by the Jewish Agency.1 In April 1937 it demanded retaliation against the Arab community whenever Jewish settlements were attacked by Arab marauders. As the Arab uprising, which had initially been an anti-British movement, became increasingly anti-Jewish, the right wing of the Jewish Defence Organisation started to carry out such retaliation. This wing, under its separate command, then became known by the name 'The National Military Organisation in the Land of Israel' (Irgu , Zvei Leumi be Erez Israel, or simply the 'Irgun'). l While the Haganah remained the military force at the disposal of the Jewish Agency, the Irgun kept a close liaison with the right wing the Revisionist Party, led from Europe by V. Jabotinsky -of the world Zionist Organisation. Direct command over the Irgun was divided between the military head, David Raziel, and the political head, Abraham Stern. Even before the beginning of WA'orld War II, differences of opinion had already arisen between

This engaging and intelligent book argues that the unbridled impact of deregulated market forces will lead to social polarization and ultimately to the destruction of capitalist society as we know it today. After providing a lucid and accessible overview of the development of capitalism, Professor Brenner explains how human greed was confined within legal boundaries and shows how ingenuity rather than brute force ultimately became the source of wealth. He explores the interaction between ideas, behaviour and economic change and points out comparisons between scientific ideas and the phases of economic development. He warns that, by an inner logic, deregulated capitalism must necessarily lead to increased inequality and to the waning of those elements in bourgeois culture which are necessary for the proper functioning of a technologically advanced industrial economy.