Redistribution of wealth has a bad reputation and is certainly something of which to be cautious. However the country we have is in part a result of a compromise made on redistribution of wealth in the 1930s, and the unwinding of that compromise is one of the reasons the United States faces economic challenges.
The compromise was that Capitalist would be allowed to continue to privately own the means of production, the mines and railroads and factories, but in exchange they must redistribute a greater portion of the wealth created by the means of production to their workers. Basically, capitalists had to pay more for labor than the free market required.
Before industrialism the owners of the means of production had no choice but to at least meet the basic needs of their workers – people were the primary form of production. Landowners needed workers to plow fields, tend herds, milk cows, to harvest the crops. In the 1800s it took 250 labor hours to harvest a hundred bushels of wheat, twenty people working a twelve and a half hour day. Transportation was just as labor intensive. In the 1800s the clipper ship Cutty Sark, made famous by the scotch, needed a crew of about 30 to transport 900 tons of cargo and many people to help unload the crates of tea it carried. Throughout most of history owners of the means of production couldn’t create value without workers, and generally producing more of anything required more workers.
Industrialism changed this relationship. Industrialism didn’t start with the first machine. It started when James Watt figured out how to capture the power of steam in an engine – it started with generated power. Machines have been around for thousands of years, but there were only a few sources of power to operate them – wind, water, animals or human labor. And people were the main source of power. We don’t think about it this way, but a blacksmith swinging a hammer to beat a piece of metal into a nail is human power being applied to a production process. The dependence on natural energy significantly limited the size and output of machines; they couldn’t be bigger than humans or horses could push or pull, or what a waterwheel or windmill could turn.
Once we figured out how to generate energy from oil or coal this energy constraint was removed. Immense amount of energy could be generated to operate machines of far greater size and output without requiring the labor of an ever greater number of workers. Whereas a blacksmith might be able to make a few dozen nails an hour, a machine overseen by a single worker could make thousands or even tens of thousand of nails in an hour. Two people in a combine and truck can harvest a 100 bushels in a couple of hours. A modern cargo steamer needs a crew of fifteen to transport 20,000 tons of cargo, twenty times as much cargo with half the crew. With modern containerized shipping the difference on the dock is even more pronounced – a few people with a crane and flatbeds can unload the whole steamer. With generated energy it was possible to produce more and more with fewer and fewer workers.
The ability to produce more and more with fewer and fewer workers is one of the reasons industrialism produces such vast wealth. However this also posed a challenge for society. In the early stages of industrialism it wasn’t altogether clear that industrialism would produce enough jobs to give everyone a chance to earn a living. Further it was easy to imagine that a two-tied society would evolve, almost a return to a feudal society. As fewer workers were needed jobs would become scarcer. Factory owners would be able to hire the few people they needed for less and less money as more people competed for the jobs. This would lead to a segmentation of society – the few people that owned the means of production would be fabulously wealthy but the vast majority of people would lack jobs and would become destitute.
In the early 20th Century there was a worldwide debate as to whether the means of production should remain privately owned or should be taken over by the state for the benefit of society – socialism. Private ownership of property isn’t a gift of God, it is a creation of human society. I own my home because society agrees I own it, and has given me a piece of paper, a title, acknowledging that I own the home. If society wants to take back ownership of the home from me, it has the right and legal ability to do so; it can turn my home into a street for society’s benefit, whether I agree or not. Socialists argued that private ownership of the factories and railways wasn’t benefiting society and that state ownership would be necessary to insure the wealth of industrialism was shared by society as a whole.
Most of the democratic countries of the world did not choose socialism. Instead democracy allowed a compromise to be reached. Capitalists would continue to own the means of production, the factories and stores and ships, however in exchange they had to accept a series of laws that forced them to pay more for workers than the free market dictated. Minimum wage laws put a floor on what could be paid. Unionization gave the workers leverage to secure higher wages. Child labor laws reduced the pool of potential workers. The forty-hour work-week increased the number of workers needed to operate the machines. All combined to increase wages, putting more money into the hands of workers while also reducing the amount of time they worked.
Putting more money in the hands of workers helped transform our economy and our society – redistribution of wealth helped create consumer capitalism. Workers had the money to buy things and the time to enjoy life. Capitalism responded by creating hundreds, even thousands of things for them to buy with this newfound prosperity. Washing machines and vacuum cleaners were invented and produced to lessen the drudgery of housework. Radios were produced to entertain and inform people. Vacation destinations for workers taking advantage of holidays were created.
Consumer capitalism eventually answered one of the most basic questions of industrialism – could it create enough jobs to keep most of the country employed. There were more things to make, which meant more jobs, which meant more competition for workers, which meant higher wages. Redistribution of wealth helped create a spiral of growth, providing the jobs that allowed tens of millions of Americans to move into the middle class.
The compromise worked for a long time – the rich got richer and the poor got to join the middle class. Unfortunately the compromise has been undermined in any number of different ways, and even the idea of a compromise now seems to have become tainted. Strengthening the compromise by itself won’t make the jobs come back, but it needs to be part of the conversation on the direction of our country. The country we have today is in part a result of redistribution of wealth. We shouldn’t pretend otherwise.