The 'Invisible Handout?' Smith, J. S. Mill and Marshall on Inequality and Progress

Abstract:     
Adam Smith, John Stuart Mill and Alfred Marshall shared a concern over excessive inequality of wealth and income, along with an attachment to individual choice, free markets and a minimal economic role of government. In this paper, I address the question of the size distribution of income, or the degree of inequality. Is there anything in Smith’s, Mill’s and Marshall’s analysis that would reduce inequality of wealth and income in a growing free market economy? I begin with Smith’s version of the Invisible Hand in Theory of Moral Sentiments. The paper draws from Theory of Moral Sentiments, Wealth of Nations, Lectures on Jurisprudence, Correspondence, and secondary literature.

Although John Stuart Mill was skeptical of income “leveling” schemes that would violate liberty and destroy incentives, he did advocate a number of policy interventions - subsidized universal education, progressive taxation, estate taxes, etc. - that would reduce inequality.

As an optimistic Victorian, Marshall thought that raising per capita output and income would play a large part of attaining higher living standards for the poor and working classes - a sort of rising tide raises all boats argument. He was also optimistic that individuals would become more benevolent as their incomes rose, so that the rich would provide more support for the poor voluntarily.

One thing that emerges is all three looked for something beyond self-interest and competitive markets to reduce inequality - “sympathy,” education producing people who were producers and better people, and “economic chivalry,” for example. Also, all three tended to emphasize expanded opportunities for individuals to raise their incomes as a means to alleviate inequality, with a smaller role for redistribution policies.

Number of Pages in PDF File: 38

Keywords: Inequality, Size Distribution, Adam Smith, J. S. Mill, Alfred Marshall

JEL Classification: B10, B30, D31

working papers series