To uncover the most important reason why we can’t afford the rich, we need to rediscover the distinction between earned and unearned income. This distinction has been fundamental to the history of political economy, socialist thought and taxation. Indeed, it’s still implicit in the categories used in our tax returns. It sounds prosaic, but it’s hugely important. Politically, it’s dynamite, for it implies that the income of the wealthiest people is largely undeserved. Interestingly, while the distinction has a long history, it has fallen out of use over the last 40 years – just the period when the unearned income of the rich has ballooned.

Let’s take earned income first. Roughly speaking, this is what waged and salaried employees and self-employed people get for producing goods and services. I don’t mean to suggest that the size of their pay exactly reflects what they deserve, but that their pay is at least conditional on contributing to the provision of goods and services that others can use. The relation between what we might think people deserve for their work – however we might want to measure that – and the amount of pay they actually get is pretty loose, as we’ll see later. Nevertheless, their income is earned in the sense that it’s work-based, and the goods or services they help to produce and deliver have use-value, such as the nutritious and tasty quality of a meal, or the educational benefits of a maths lesson, or the warmth provided by a heating system. So there are two criteria here: earned income is dependent not just on working, but on work that contributes directly or indirectly to producing use-values. This is important because, as we’ll see shortly, it’s possible to work without producing any useful goods or services, and indeed in a way that merely extracts money from others without creating anything in return.

Some earned income is deferred. National insurance contributions paid by employees out of their earnings provide for a state pension in retirement and certain other benefits. So just because someone is receiving benefits without currently working it doesn’t mean that their income is necessarily unearned; they may just be getting back what they had earned but not used earlier.