But towards the end of the 19th century, discussion of the class inequality of rewards faded away. The marginalist revolution— direct precursor of the mathematical economics of today—dropped the attempt at social realism, by positing a perfectly competitive market economy with numerous “agents,” each of whom would receive the value of his “marginal product”— the exact amount he added to economic value. The existence of power in the market was recognised only in the form of “monopoly”—a single firm in an industry being able to set the price of its product, a problem to be tackled by regulation or trust-busting laws. This new, marginal analysis was intended to bypass the unsettling distributional issues raised by the classical economists. The claim that the market paid every producer what he was worth undercut the socialist argument for redistribution.
In his massive book, Capital in the 21st Century, Thomas Piketty, a professor at the Paris School of Economics, revives the economics of David Ricardo and Karl Marx. His thesis is simple. The growing concentration of capital in fewer hands has enabled its owners to keep it relatively scarce and thus valuable. Agricultural land has dropped out as a factor of production, but urban real estate has taken its place. Capitalist societies therefore have a natural tendency to generate a highly unequal distribution of wealth and income
Deeply impressive in its style and learning, Piketty’s argument is nevertheless incomplete. His story is about the super-rich racing ahead of the rich (and everyone else) since the 1980s. He explains this by the power of the rich to set their own pay and the ease with which they can transform their super-salaries into capital. But there may be another explanation, which is that digital technology actually increases the marginal product of the top performers in all fields of endeavour, creating a global elite of superstars who are distinguished from the rest by their exceptional talents. This is the view of Erik Brynjolfsson and Andrew McAfee in their new book The Second Machine Age. To the extent that “technology increases the reach, scale, or monitoring capacity of a decision- maker,” it makes managers more “valuable.” This implies that supermanagers get higher pay because they are more productive, not just because they can set their own salaries.
Digital technology can also boost rewards to superstar writers and performers. For example, digitisation and globalisation have “supercharged the ability of authors like JK Rowling to leverage their talents… Rowling’s stories can be captured in movies and video games as well as text, and each of those formats… can be transmitted globally at a trivial cost.”