How the rich are different: hierarchical power as the basis of income size and class
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How the rich are different: hierarchical power as the basis of income size and class Blair Fix1 Received: 22 January 2020 / Accepted: 20 August 2020 © Springer Nature Singapore Pte Ltd. 2020
Abstract This paper investigates a new approach to understanding personal and functional income distribution. I propose that hierarchical power—the command of subordinates in a hierarchy—is what distinguishes the rich from the poor and capitalists from workers. Specifically, I hypothesize that individual income increases with hierarchical power, as does the share of individual income earned from capitalist sources. I test this idea using evidence from US CEOs, as well as a numerical model that extrapolates the CEO data. The results indicate that income tends to increase with hierarchical power, as does the capitalist composition of income. This suggests that hierarchical power may be a determinant of both personal and functional income. Keywords Hierarchy · Power · Functional income distribution · Personal income distribution · Inequality · Capital as power · Class
Introduction Let me tell you about the very rich. They are different from you and me. — F. Scott Fitzgerald [1] Yes, they have more money. — Ernest Hemingway [2] What makes the rich different? Why do they earn more money than other people? And why does this money tend to come from property, not wages? These are the questions that underpin the study of personal (size-based) and functional (classbased) income distribution.
* Blair Fix [email protected] 1
York University, Toronto, ON M3J 1P3, Canada
13
Vol.:(0123456789)
Journal of Computational Social Science
Responses to these questions have fallen roughly into two camps. Neoclassical economists argue that the rich are different, because they are more productive. That this productivity comes largely from property then signals that property is itself productive. Marxists, in contrast, argue that the rich are different, because they exploit workers. By owning the ‘means of production’, the rich are able to extract a surplus from workers. It is this exploitation, Marxists believe, that explains the greater income of the rich. And it is the ownership of the means of production that explains why the rich earn income largely from property. After nearly a century of debate between these two schools of thought (with little conciliation), I believe that it is time to look for an alternative approach. What makes the rich different, I propose, is not the productivity of their property or their exploitation of workers. Instead, I propose that the rich are different because of their greater control of subordinates—what I call ‘hierarchical power’. I hypothesize that individuals with more hierarchical power tend to earn more income, and have a larger share of this income come from capitalist sources (“A theory of income distribution based on hierarchical power”). To test this hypothesis, I look for a correlation between income size and hierarchical power, on one hand, and a correlation between income composition and
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