In an idealized market economy, money serves two distinct functions:
First, it acts as a reward for value creation. If a person provides a good or service that others find valuable, that person is compensated with some of the surplus value created in the form of cash. In that way, it rewards the provision of goods or services that others find valuable; the more value (and the greater the portion of that value one can capture), the greater the reward.
Second, it acts as a mechanism for ‘voting’ about what matters. When a person spends money, it amounts to a statement of values: “this good or service is worth more to me than these X dollars”. Each exchange of money for a good or service is thus effectively a vote about how valuable a good or service is, as it signals to the market that the good or service is worth more than its current price to some people.
Both roles are present in any exchange: producers are being rewarded for the value they add (including the value in connecting people with products and services they value), and buyers are voting for that value with their dollars. And both roles are an important part of a market economy, producing the effects that make markets useful. The votes incorporate information about what everyone wants, and the rewards draw productivity towards those valuable things. Together, the effects resolve issues of scarcity, providing an answer to the question, how can we produce the most value using the resources we have?
In an idealized economy, where every participant starts with equal resources, this makes sense and is efficient in the early rounds: people are incentivized to allocate resources to the most socially valuable pursuits*. But in subsequent rounds, when the allocation of resources is unequal, it isn’t obvious that the people who provided value in the past should have more say in what gets rewarded in the future.
One argument is that people who successfully produce value in the past are more likely to provide more valuable information with their votes, i.e. in the past they have voted that certain investments will produce value for others, and their profits show that they were right (again, in a toy economy), so we might expect their subsequent votes will reliably point to future value for others. That argument is not entirely without merit: certain attributes that would make someone a better voter for what’s valuable also make someone a better producer of value: appropriate risk weighting, accurate expectations about the future, the ability to delay gratification and invest for the long term, the ability to see alternative possible uses of resources. Conversely, the corresponding shortcoming would be expected to reliably waste resources. A habit of hedonistic spending will see you worse off in subsequent rounds, while a habit of investment and longer-term planning will see you better off. So, up to a point, this allocation of votes tracks ability to vote.
But it’s not clear that the effect is always dominant: much of market success is arbitrary, and giving more say to people who essentially win a lottery for economic success is not justified by this rationale. Moreover, over many many rounds, the allocation of starting ‘votes’ is likely to be severely misallocated. The lottery effects will build over time, as those with more ‘votes’ get to play the lottery for market success more times. Heirs to previous lottery winners will often not inherit the traits that, by hypothesis, make it reasonable to allocate past winners more votes. And the market information will incorporate more and more idiosyncratic values, as the influence with those with orders of magnitude more ‘votes’ will dominate the voting, and ignore the votes of large swaths of the market which, combined, have less vote than the very wealthy.
This framing suggests that 1) an unregulated market will degrade over time, and 2) redistributive intervention is necessary to maintain a market economy. Despite relying on an ideal market and a favorable framing, and ignoring other problems inherent in market economies, it shows that the major justifying functions of the market fail without some function to nudge the distribution of votes toward the initial conditions.
This provides support for treating proposals such as a wealth tax, estate tax, and basic income as pro-market policies that strengthen the ability of market forces to allocate scarce resources. At some margin of inequality, the rewards and votes no longer serve their initial function, and there is no market.
*I’m ignoring special cases where markets don’t work, e.g. public goods, non-rivalrous goods, etc., because the issue I’m trying to isolate is not one of market failure, but of self-defeating market success.