To understand the libertarian view of inequality, let’s turn to Milton Friedman, one of America’s most famous and influential makers of free market mythology. Friedman decreed that economic policy should focus on freedom, and not equality.
If we could do that, he promised, we’d not only get freedom and efficiency, but more equality as a natural byproduct. Libertarians who took the lessons from his books, like Capitalism and Freedom (1962) and Free to Choose (1980), bought into the notion that capitalism naturally led to less inequality.
Basically, the lessons boiled down to this: Some degree of inequality is both unavoidable and desirable in a free market, and income inequality in the U.S. isn’t very pronounced, anyway. Libertarians starting with these ideas tend to reject any government intervention meant to decrease inequality, claiming that such plans make people lazy and that they don’t work, anyway. Things like progressive income taxes, minimum wage laws and social safety nets make most libertarians very unhappy.
Uncle Milty put it like this:
Well, that turns out to be spectacularly, jaw-droppingly, head-scratchingly wrong. The U.S. is now a stunningly unequal society, with wealth piling up at the top so fast that an entire movement, Occupy Wall Street, sprung up to decry it with the catchphrase “We are the 99%.”
How did libertarians get it all so backwards? Well, as Piketty points out, people like Milton Friedman were writing at a time when inequality was indeed less pronounced in the U.S. than it had been in previous eras. But they mistook this happy state of affairs as the magic of capitalism. Actually, it wasn’t the magic of capitalism that reduced inequality during a brief, halcyon period after the New Deal and WWII. It was the forces of various economic shocks plus policies our government put in place to respond to them that changed America from a top-heavy society in the Gilded Age to something more egalitarian in the post-war years.
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The ironic twist is this: The reason a person like the fictional John Galt would be able to rise from humble beginnings in the 1950s is because the Gilded Age rentiers lost large chunks of their wealth through the shocks the Great Depression and the deliberate government policies that came in its wake, thus loosening their stranglehold on the economy and society. Galt is able to make his fortune precisely because he lives in a society that isn’t dominated by extreme concentrated wealth and dynasties. Yet the logical outcome of an economy in which there is no attempt made to limit the size of fortunes and promote greater equality is a place in which the most likely way John Galt can make a fortune is to marry an heiress. So it was in the Gilded Age. So it may be very soon in America.