In response to my last couple posts, I have received replies arguing that even if the government was not involved in rigging the economy in favor of big business and established firms, we would still have great levels of inequality due to the fact that some people are just naturally better at making money than others. Such replies usually use the inequality in the 19th century, a time when the economy was supposedly more free, as evidence. I disagree that the economy was all that free in the 19th century and that it shows that huge disparities of income are somehow natural or desirable. I also cannot relate at all to the types who seem to wish to go back to the 19th century and worship the big industrialists of that period for reasons I will detail below.
To start the big concentrations of wealth in the 19th century, were largely created by government intervention. For one, there was a major costly war in the middle of the century (that impoverished many but made a some quite rich) many of the major industrialist and financiers of the late 19th century made their initial fortunes as government contractors during the civil war. These include Andrew Carnegie, J.P. Morgan, Philip Armour, Clement Studebaker, John Wanamaker, Cornelius Vanderbilt, and the du Ponts.
Additionally, a substantial portion of the population at the time were also slaves (or former slaves, released with no property of their own). This definitely contributed to inequality and is inconsistent with a free society or economy. Prior to the war, wealthy southerners financed themselves through slave labor and the north built its economy around tariff-protected industries.
Furthermore, the state largely subsidized the development of big business in the form of railroad subsidies, huge land grants to the politically connected, government granted mining claims ect. This period also marked the rise of government granted limited liability and expansions of patent laws that were favorable to big business. All of this made the well off richer at the expense of everyone else. That said, my understanding is that despite the mass corruption, and cronyism, by the late 19th century, the established business elites were suffering due to growing competitions from upstarts, and during the twentieth century they largely turned to the regulatory
state weaken this competition.
As such, it is my understanding that a free society would actually, be more egalitarian than a cronyist one, because the state would not be making some people more rich at the expense of others. If opportunity to compete is available to all, competition will constantly drive down prices and eat into huge concentrations of wealth. If someone is able to make a fortune selling a product, a free society would allow anyone and everyone to duplicate their success, till the price of that product is negligible. Much of what the state does is subsidize away dis-economies of scale. In the absence of this, the cost of doing business on a larger scale would greatly increase (thereby serving as an equalizing factor).
For more information on this topic, I recommend this piece by Sheldon Richman.