The Strategy of Economic Policy and Income Distribution

In a capitalist economy, income distribution is compounded out of the distribution of capital income, the dis tribution of labor income and the shares of capital and labor in total income. As capital inequality is much greater than in come inequality, a decrease in capital's share would decrease income inequality. Keynes held that euthanasia of the rentier —that is, a decrease in capital's share of total income—would result from the investment that takes place during sustained full employment. Tolerably full employment has been sus tained ever since World War II, but capital's share of income has not fallen. Full employment over the postwar period has been the result of policy which conformed to a private invest ment strategy. This strategy operates by sustaining and in creasing the returns on capital and also carries threats of finan cial instability and inflation. An alternative public employ ment strategy for full employment policy is available. This strategy would probably lead to a partial euthanasia of the rentier and would tend to diminish the likelihood of financial instability and inflation. Highly stylized examples show that the effects of a partial euthanasia of the rentier, when com bined with mildly equalitarian taxes, transfers and government services, can lead to a substantial decrease in income in equality.