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Subject Area: Political Theory

Unequal Income - Leonard P. Liggio, Literature of Liberty, January/March 1978, vol. 1, No. 1 [1978]

Edition used:

Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.

Part of: Literature of Liberty: A Review of Contemporary Liberal Thought, 20 vols. 19781-982

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


Unequal Income

Battalio, Raymond C.; Kagel, John H.; and Reynolds, Morgan

  • Texas A & M University

“Income Distribution in Two Experimental Economies.” Journal of Political Economy (USA), 85 (1977): 1259–1271.

Empirical studies show that distribution of income and earnings reveal virtually nothing about socioeconomic structure in which the observed distribution was generated. We can study two institutional structures and populations that significantly differ from national economic systems and from each other. Yet between these two empirical measures of income, distribution was not dramatically different.

In two experimental economies, we focused on the income distributions which occur. In these studies, the only sources of income differences were individual tastes for income/leisure and individual abilities to perform work.

The first experimental economy was set up in a female ward for chronic psychotics at Central Islip State Hospital in New York. There, the inmates were rewarded for doing primarily custodial work by receiving tokens which they could use to buy goods not otherwise supplied by the hospital, such as cigarettes, coffee, candy, and additional recreational facilities. The jobs they could perform were simple enough so that each inmate could do any of the jobs available; wage rates were announced and set to clear the market; and each inmate could work as much or as little as she desired.

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The second experimental economy was set up to study the socioeconomic effects of marijuana consumption. Here, subjects had to purchase all their consumption goods (except their bed space) with money they earned from selling their handwoven woolen belts. Again, each participant had unlimited access to the looms and materials for making the belts and could sell all that he or she made at an established price.

In both these experimental economies, then, the differences in income which occured could only be attributed to differences in the individual's desire to work and his or her ability to perform the jobs available. After five weeks of study, the income distributions which resulted in both these economies closely resembled the income distributions found in the United States and other market economies.

In conclusion, those who assert that incomes in developed countries would be more equally distributed if all sources of income inequality, except abilities and taste differences, were removed are incorrect. The experimental studies support the contention that differences in real property ownership, luck, access to capital markets, discrimination, and nepotism are not major causes of income inequality in the United States. Such inequalities seem natural and inevitable irrespective of socioeconomic structures.