The new era of monopoly is here

Today's markets are characterised by the persistence of high monopoly profits

For 200 years, there have been two schools of thought about what determines the distribution of income - and how the economy functions. One, emanating from Adam Smith and 19th-century liberal economists, focuses on competitive markets. The other, cognisant of how Smith's brand of liberalism leads to rapid concentration of wealth and income, takes as its starting point unfettered markets' tendency toward monopoly. It is important to understand both, because our views about government policies and existing inequalities are shaped by which of the two schools of thought one believes provides a better description of reality.

For the 19th-century liberals and their latter-day acolytes, because markets are competitive, individuals' returns are related to their social contributions - their "marginal product", in the language of economists. Capitalists are rewarded for saving rather than consuming - for their abstinence, in the words of Nassau Senior, one of my predecessors in the Drummond Professorship of Political Economy at Oxford. Differences in income were then related to their ownership of "assets" - human and financial capital. Scholars of inequality thus focused on the determinants of the distribution of assets, including how they are passed on across generations.

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