INFERENCES FROM COMPARATIVE DATA

While a more egalitarian distribution may be just, implementing it would be imprudent if redistribution resulted in reduced savings and economic growth. A major axiom of modern economics holds that income inequality is positively related to savings, investment, and economic growth. More equal distribution of income, the axiom cautions, would dampen savings, and it would, therefore, be unwise to undertake. But comparative analysis raises some doubts about the conventional axiom, for it shows that income equality is not necessarily related negatively to savings and growth. Prudence does not counsel against justice in income distribution.

In the conventional reasoning, the upper strata save a higher proportion of their income than do the lower income strata, because ample income leaves more left over for saving after consumption needs have been met. For this reason, it is held that an inegalitarian regime can generate more savings than can an egalitarian regime. By building greater national savings, an inegalitarian regime can surpass the productive capacity of an egalitarian system and it can, therefore, generate more national wealth. So everybody is better off than the members of an egalitarian system. The lower strata of an egalitarian society would receive a higher proportion of the national income than they would in an inegalitarian regime, the argument goes, but their absolute income would be lower.

An egalitarian regime could conceivably affect two types of savings, personal and corporate. Yet the redistributory property right does not regulate the proportions in which national income gets divided between investment in economic enterprises and in consumption, and it therefore does not obstruct capital formation by firms. The more substantial concern is how it would affect personal savings.