How Money Legitimizes Inequality

This essay asks why people accept large economic inequality. It seems people agree in principle that large economic inequality is problem-atic—but at the same time they do not seem to know how to protest against it: which act of unfairness can it be called? The puzzling outcome is that inequality today is—with notable exceptions—widely accepted as the state of our society. This short essay will briefly touch on possible answers as to why people tolerate economic inequality. Then it will, with the help of Georg Simmel's Philosophy of Money, attempt to answer the question that draws on a peculiar feature of money: money enables instantaneous transactions and thereby closes off future communication.

1. Inheritance

Inheritance may be the single most influential cause of inequality. Thomas Piketty has tracked European inheritance in the past century and a half, and he found that inheritance has played a fundamental role in economic inequality. In fact, he suggests that the US American percentage of wealth derived from inheritance, if it was known, could be anywhere between 20% and 60%, given from the range of informed estimates available.

Hence, a simple remedy balances inequality: cap inheritance. Certainly, people should be able to pass on personal objects, a family home up to a certain value, money, and even valuable artworks that are part of a family history. However, there ought to be a clear line: a line that is not well described by current inheritance taxes in North America or Europe. No one ought to inherit a fortune. No one requires to be given a palace at one's start of life. The wishes of a person should mostly end with his or her death, with the exception of charitable funds that are for the well-being of many others and that are interpreted through living interprets of the will. Whereas it is laudable people wish their children and families to do well after their death, this should never reach a level that produces a generation beyond needs and the drive to become a productive part of society. In our current world, ghosts from the past centuries still rule.

Not only would the measure to cap inheritance change actual distribution, it could also change the rhetoric of inequality. Piketty suggests that inheritance of wealth not only leads to the increasing inequality but it is also used to justify inequality:

In 1881, Paul Leroy-Beaulieu … vigorously defended the high civil servants of his day […]. these were figures that might seem enormous to the common man but actually make it impossible to live with elegance or amass savings of any size.¹

Similarly, the exorbitant incomes of top managers and stock brokers today are often justified, as Picketty points out, by the notion that they need to amass enough income to equal rich heirs of large fortunes, whose money they invest.

What is interesting about this argument is its circularity. The existence of large fortunes and of large heritages is used to justify huge salaries for a few. This allows these few to amass the next exorbitant fortune, which then justifies the next generation of stockbrokers to earn excessive salaries to match these nouveaux riches.

Inheritance of fortunes may thus be at the root of economic inequality by constituting, perpetuating, and justifying it. Currently, a few inherit fortunes that raise them out of the pool of the workforce. In many cases, they never experienced hardships of their parents' hard work that could perhaps justify the reward since their parents already profited from inheritance themselves.

So why do "we, the people" tolerate this injustice and accept it? Or put differently, why is my agenda a non-starter? Why is no one listening?

2. The Question

Let us begin by defining the question. Niklas Luhmann raises a peculiar question in his fundamental Die Wirtschaft der Gesellschaft [The Economy of Society] (1988):²

The problem of scarcity is a temporal-factual-social problem, as we all know. Whatever the "natural" conditions may be: the problem arises when someone with interests in his future in mind excludes others from access to resources...