When capital becomes labour

Household net worth has been growing considerably faster than wage income since the late 1970s.¹ As we can see in the above graph, the exceptions to this occurred during stock-market crashes (causing a drop in the value of household assets) and, especially, in times of high inflation (1965–1980 and, more recently, 2021–2022). That’s because inflation leads to higher interest rates, which drag down the value of financial assets. By the same token, we can conclude that the most lucrative climate for the holders of property and financial assets is one of disinflation fuelled in part by low wages, owing to the attendant cuts in interest rates – although such a climate often goes hand-in-hand with higher debt levels.

Today, the proceeds of capitalism seem to be increasingly flowing away from labour and towards capital. Analysts estimate that SpaceX’s IPO instantly created over 4,400 millionaires among the firm’s employee shareholders², providing a perfect example of what we mean. The trend described above pushed the share of wages in US GDP down to its lowest level last month. In the era of artificial intelligence, capitalism seems to be evolving towards a system where capital becomes labour, and where it would make sense for stock-based compensation to gradually replace cash wages. The losers of this system stand to be employees without equity exposure.

Enabling more workers to hold capital would be an economically virtuous response to today’s rising inequality, which has more to do with wealth than with labour income. Another option would be to strap inflation - that will result from the forthcoming deglobalisation³ - into a straightjacket to hold it under 2% instead of (and why 2%, anyway?). Assuming the correlations shown in our graph are robust, inflation would return some of the distribution of wealth to workers in the form of wages and help reduce public debt levels. A shame these two options are mutually exclusive.