Since the earliest days of capitalist development, inequality has captivated policymakers and researchers alike. By the time Kuznets penned his influential article, a lot of water had gone under that bridge.
The Physiocrats and primarily Classical Political Economy—spearheaded by Adam Smith—deserve particular mention. They placed inequality at the very heart of the theoretical framework, probing how wealth diffused among different social classes. This led to comprehensive distribution theories, most notably under Ricardo and Marx, whose approaches diverged sharply. By the late 19th century, Booth and Rowntree, among others, had conducted empirical investigations into poverty that rattled the English public—although Engels anticipated them by almost half a century with his classic work on the English working class.
Almost simultaneously, the so-called “marginal revolution” in economics dramatically shifted the analytical lens from social to personal distribution. As a result, inequality faded from mainstream focus, perhaps with the notable exception of Pigou, who in the early 20th century established the foundations of welfare economics. It fell to thinkers such as J. Hobson, Veblen, R.H. Tawney, and Kalecki—some of whom were not strictly economists—to keep the study of inequality alive. Pareto is a striking case: once a central figure among the marginalists and still frequently quoted by mainstream economists, he soon became disenchanted, redirected his formidable intellect toward sociology, and openly critiqued his former colleagues.
Arguably, many of these thinkers were motivated to build distributional theories that could illuminate inequality under capitalism and guide real-world policy. It’s important to recall that trustworthy data on inequality was rare—and even when available, often questionable. Making robust empirical research was therefore a genuine challenge. Since mainstream economics did not prioritize inequality, official statistics typically looked elsewhere. Moreover, research on inequality conducted by those outside the dominant economics school was largely ignored.
Broadly speaking, this was the backdrop for Kuznets’s landmark 1955 article. By then, the Cold War was in full swing—a reality a Russian émigré like Kuznets could hardly ignore. The Korean War had just ended, while Senator McCarthy was already actively pursuing “communists.” In a way, his main hypothesis that (capitalist) economic growth eventually leads to less inequality does fit a Cold War atmosphere. Notably, Kuznets’s article was not a formal paper but the text of his 1954 speech at the annual meeting of the American Economic Association. It is also unclear whether Kuznets read any of the aforementioned heterodox authors, as his research on the topic does not reference them. Nonetheless, he could also be considered something of an outsider to mainstream economics, given his particular approach to the field, despite earning his Ph.D. at Columbia University.
Oddly enough, the article’s publication did not immediately trigger a large influx of research. In fact, it was mostly overlooked. A few researchers began following his cues in the 1960s (see references below). Change began in the early 1970s as both supporters and critics emerged. With more relevant data available, most research centered on developing econometric models to test his inverted-U hypothesis. By the end of the 1970s, inequality research had decreased significantly after an earlier rapid increase. Research activity did not pick up again until the mid-1990s. At that point, inequality in advanced economies began to rise again, challenging Kuznets’ hypothesis. Twenty years later, Piketty introduced substantial new criticisms. Supporters of Kuznets’ work responded, adding more armor to protect the crumbling fort.
The selected references at the end of this post include both early groundbreaking research and recent contributions. Applying Hegelian logic to categorize this research, I can divide most of this work into three closely related groups, corresponding to the logic’s three moments: 1. Abstraction—understanding. 2. Dialectical—negation. 3. Speculative—negation of negation.
The first group comprises what I call the Kuznets team (KT). This group comprises the pioneers who fully understood the hypothesis and ran with it. Yet, KT is not homogeneous. From a theoretical perspective, two distinct subgroups emerge: the empiricists and the structuralists. The empiricists primarily used econometric techniques to test the inverted-U hypothesis, generally relying on the basic Kuznets model I described in the previous post. They were predominant in the 1970s. In contrast, the KT structuralists dominated the 1990s. They leveraged more sophisticated models that introduced parameters such as urbanization, education, financial development, and institutional change, among others. They also had access to more reliable data. However, it is well known that in econometrics, introducing additional variables into a given model typically improves performance—as long as issues such as misspecification, autocorrelation, multicollinearity, and heteroskedasticity are adequately addressed. Both groups included critics who sought greater precision and improved estimation methods. Finally, proponents of the environmental Kuznets curve, emerging in the 1990s, also belonged to this team.
The second group, notably smaller, is the critical Kuznets team (CKT), led by Piketty and his collaborators. CKT challenged the purported dynamics of the inverted-U hypothesis. Its research suggested that the inverted-U curve applied only to a specific period: essentially, from the end of WWI to the late 1960s and early 1970s, triggered by exogenous shocks (war, social upheaval, etc.). Since then, inequality has followed a U-shaped curve, as discussed previously. In other words, Kuznets could not see the forest for the trees. While the empirical negation of the curve can be deemed as relative, the theoretical one is absolute in Hegelian speak. Indeed, CKT posits that rising inequality is an internal feature of modern capitalism. It is a feature, not a bug. On that basis, it proclaims that only targeted policies and state intervention can alter this trajectory. This is an anathema to the neoliberal establishment, of course. Unlike KT, CKT’s approach differs by grounding its critique on sound theoretical grounds. Addressing its challenge will thereby require an alternative analytical framework. Throwing in more creative econometric models alone will not suffice.
The speculative Kuznets team (SKT) is led by Milanovic and supported by the latest research (see references again!). It tackles the challenge head-on in its attempt to rescue the battered Kuznets curve from dialectical obliteration. The creative mechanism Milanovic deploys relies on Kuznets cycles (or waves), which occur every 15 to 25 years. Such waves are triggered by the development of new general-purpose technologies. At the beginning of every new wave, inequality tends to increase, but eventually it reverses. Here, the Kuznets curve comes back swinging! However, the original assumption that long-term economic growth leads to decreased inequality has now vanished. Moreover, the detailed mechanism that explains why the curve occurs cyclically is missing. The same goes for its inflection point within each Kuznets cycle. Compared to Piketty’s endogenous mechanisms, SKT’s framework still needs to do a lot of work to fully negate the negators. While creative, it remains highly descriptive and speculative.
SKT could have instead introduced Kondratiev’s long waves, which last 50 years and are partly triggered by technological innovation. Authors such as Schumpeter, Freeman, C. Perez, Mandel, Tylecote, and D. M. Gordon have done extensive work on long waves. Although agreement on their internal dynamics has not been reached, each author provides a sound analytical framework to explain it. Plugging in the Kuznets curve into any of them is thus quite plausible. Note that Kuznets did not specify a timeline for his inverted-U curve. The scant data he shares in this original article cover, for example, over 50 years in the UK and Germany. Moreover, the U.S. graph I shared in the previous post spans 112 years, suggesting that inequality dynamics may better fit within long-wave curves.
We can redo that chart and only include the years that Kuznets originally considered. From the econometric analysis, I know the basic model detects breakpoints (or inflection points) in 1924, 1942, 1966 and 1981. The graph below depicts the Kuznets curve for the period 1913-1955, the year his article was published.
Raul
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