All traditional societies had means to limit the unequal distribution of wealth. Some of these were derived from custom, while others were structured by religious dogma and sanctions. It is a shame that most economists (both socialist and capitalist) of the 20th century regarded capitalism as a modern phenomenon, when we can see its existence in many societies of the ancient historical period, and among
traditional societies, as Herskovits so clearly demonstrated in his book, Economic Anthropology published in 1952. For example, Ancient Egypt was a market economy of credit instruments, money and contracts enforced by law. I have given other examples for the existence of derivatives in ancient and traditional society in recent articles and chapters in books (Caldararo, 2009; 2010). This clothing of modern society in special garb to separate it from past economies is unfortunate as it prevents us from making useful comparisons of societies under stress ancient and modern. We might recall that to Adam Smith capitalism was clan warfare. He clearly describes that when one clan, whether of Mercantilists, bankers or guilds gained the upper hand in an economy and controls the government, then the economy becomes influenced and out of balance, wealth and trade become constrained and distorted by the interests of the dominant group. The history of monopoly he gives and we have seen since amply attests to this scenario.
In modern capitalist countries the distribution of wealth has
generally been poorly regulated by attempts at wage and price controls
and consumption laws that usually only affect the middle and lower
classes. Taxation has been more effective depending on enforcement and
the tax structure. Generally, however, most societies, ancient or
modern fail to deal effectively with inequalities in wealth and
taxation is shifted onto the lower classes resulting in diminishing
returns and unrest as I have shown in my book War, Religion and
Taxation (2009). Tainter (1988) comes to a similar conclusion in his
Collapse of Complex Societies, though we disagree on the role of
taxation.
As in examples from past civilizations, we have seen since the 1980s the tax burden shifted in America to the middle and lower classes and the inequality of wealth has skyrocketed. Some conservative websites argue that the share of the Federal tax burden rose for the highest earners (http://www.taxfoundation.org/...). This obfuscates the situation for it is a means of deflecting attention from the tremendous increase in wealth of the highest earners at a time when most Americans have seen their incomes stagnant. Also, it confuses the role of taxation and spending. If you have 100 tax payers who each pay 10% of their income and that raises $1000 which is the necessary amount to pay for expenditures, then your tax income is sufficient no matter how the rate affects the remaining income of each percentile of taxpayers. If however, you decrease the tax rate on all taxpayers so that the resulting tax proceeds only cover half the expenditures then you have a deficit and this is what has happened since the Reagan administration. Decreased tax rates have not resulted in increased tax proceeds to cover expenditures which was the Reagan theory.
As Patricia Becker has shown in a paper in 2006 (http://books.google.com/...) the income of the highest earners has increased 3 times as fast as the lowest percentile and this has only become more divergent since 2006.
Therefore, the amount of that tax relative to the increase in their wealth of the highest earners declined as the percentage of the lower 95% of earners fell as did their relative earnings. When other taxes are considered, property, sales and
transfer taxes, for example, the relative tax burden fell even more
significantly on the lower 95%
(http://www.huffingtonpost.com/...
480.html).
The lack of tax revenue due to tax cuts over the past 30 years has created huge debts for the federal and state governments as well as many localities, thus the anti-tax mentality has been destructive to the fiscal responsibility of the citizenship.
The idea that the richest earners are using their income to create jobs is also a questionable argument, they are placing it increasingly in speculation and off-shoring it.
Bernstein Research reported in last week’s Financial Times that there has been a stunning drop in investment in research and development since a high in 1997. Martin Wolfe reported that gross investment in the UK and USA has fallen to the lowest level in 3 decades. Venture capital is at a low as well as people are fleeing real investing and placing their money in hedge funds, Forex speculation and other non-productive vehicles.
The really troubling effect of the lack of equity in taxation and income has been the replacement of income for the lower 95% by debt. As their incomes became stagnant from the 1970s to the present, the lower earners replaced income increases with either credit card debt or borrowing from home equity. So while the rich got richer, the rest got debt. This situation can only be corrected by revising the tax code to make it take into account rising incomes of any segment of the economy. As societies become more unequal in wealth they become less stable. This result has followed with the French Revolution of 1789, the Russian in 1917 and in 1989 as well as the recent crises in the Middle East. Currently the financial industry holds the seat of dominance Adam Smith warned us about, and their influence is destructive and should be ended to restore the balance of the market place.