How Inequality Leads to Industrial Feudalism

Yves here. Readers have sometimes depicted our current economic arrangements as neo-feudalism. Economists confirm that perception and build on the 19th century concept of industrial feudalism.

By Hanna Szymborska, Senior Lecturer in Economics, Birmingham City Business School; and Jan Toporowski, Professor of Economics and Finance, SOAS, Visiting Professor of Economics, University of Bergamo, and Professor of Economics and Finance, International University College. Originally published at the Institute for New Economic Thinking website

We live in an age of growing inequality, insecurity over future prosperity, and anxiety about employment and opportunities for professional advancement. The concept of Industrial feudalism is a striking way of understanding how this situation arises even as we are offered more consumer choice and markets are liberalized.

Industrial feudalism emerges as industrial society is stratified into relatively closed social classes that are defined in relation to their property or their professions. In effect, that society loses the economic and social dynamism by which capitalism overthrew the hereditary hierarchies of feudalism.

The concept and analysis of industrial feudalism emerged in Polish Marxist discussions of the 1890s in relation to the social and economic hegemony of large industrial corporations. In our new working paper, we extend this idea to the present day by showing how social classes are differentiated by the composition of their property. As the distribution of wealth becomes more unequal, that property, and the credit practices associated with it, eliminate social mobility and thereby recreate industrial feudalism.

The idea of industrial feudalism was introduced by Polish sociologist Ludwik Krzywicki (1859-1941) as a consequence of industrial cartels, with the capacity to stabilize their markets and their profit margins, at the cost of economic and social stagnation and declining opportunities for innovation and social advancement.

Among Krzywicki’s most enthusiastic admirers was the economist Oskar Lange (1904-1965). Lange criticized Roosevelt’s New Deal and Keynesian intervention by arguing that such policies supported the monopoly positions of certain capitalist groups. In this situation the profit of the entrepreneur ceases to be the reward for a willingness to undertake risk and the efficient minimization of costs. It becomes simply a privilege arising out of economic concentration and government guarantee. Financial and industrial feudalism, he thought, was now a system of precisely defined group privileges, divided among social strata as rigid as any in medieval times. In such a society, incentives to progress disappear. More than this, such a society would revive the cultural and political superstructure of feudalism with every kind of discrimination, intolerance, fanaticism, and narrowness of outlook, with the state bureaucracy integrated with the oligarchy of haute finance and big business. Keynesianism, in his view, had to be tied to a progressive anti-trust agenda and full employment.

The industrial feudalism of Krzywicki and Lange regarded entrepreneurship as the source of social mobility. While the scope for entrepreneurship and access to finance clearly affects the rigidity of industrial hierarchies, social hierarchies are distinguished by ownership of more general categories of wealth, that may include industrial capital, but may also consist of household wealth which may be inherited. Concentrated ownership of both industrial and non-industrial property makes the distribution of wealth a factor in the current tendencies towards an industrial feudalism in which differences between social strata are reinforced by an absence of social mobility.

Around the world, after the peak recorded in the early 1910s, wealth inequality followed a downward trend until the late 1970s and has been rising steadily since the mid-1980s. In contrast to income, wealth inequality in many countries was largely unaffected by the global financial crisis in 2007, reaching new heights by the late 2010s. Rising wealth inequality has not been limited to advanced capitalist economies like the UK or the USA. Indeed, with greater openness to capitalist forms of production, increases in wealth inequality have been dramatic in the transition economies in Central and Eastern Europe as well as in China.

Existing literature on the sources of wealth disparities does not explore the social and economic implications of these inequalities for the functioning and the development of capitalism. In our working paper, we develop a new theoretical framework to link the mechanisms of wealth inequalities to diminished prospects for social mobility which recreate industrial feudalism in modern times.

Different social classes own different kinds of wealth. So the returns to owners in different classes differ, and so do the credit practices associated with that wealth. Lack of access to all kinds of wealth prevents upward mobility, but the ownership of certain wealth (which can be borrowed against) helps to avoid downward mobility of property-owning classes.

Social classes are therefore defined by their ownership of wealth as much as by their income. In each class there is a standard wealth portfolio that a household needs to possess in order to maintain its position in that class. For each class there is a floor that prevents a household in a given class from becoming déclassé due to a failure of income. These are made up of the credit practices that households use to prevent their falling into the wealth class below their class. But for each class, there also exists a ceiling which consists of the difference in value between the standard wealth portfolio of that class, and the value of the standard wealth portfolio of the next class up in the wealth hierarchy.

Wealth disparities arising due to developments in the asset markets are shaped by changing macroeconomic conditions, and not by households’ individual characteristics influencing their capacity to save and their investment choices. The case of the subprime crisis in the USA highlights the role that changing macroeconomic conditions and financial sector operations play in determining social mobility through their impact on both the access to and the stability of wealth. While undoubtedly important, saving is only one way through which households accumulate wealth and move along the social ladder. The composition of wealth in terms of access to various types of assets as well as leverage is crucial in understanding the increasingly unequal distribution of wealth because of disparities in capital gains available to a household. Thus, differences in price appreciation for various assets have a substantial impact on wealth inequality.

The floors and ceilings that keep households in their social classes are also affected by the social policies of governments. Welfare state provision, quality public services, and government policies to secure full employment strengthen the floors preventing declines in social class status. Already since the 1980s changes in public policy have increasingly followed financial logics and reflected financial sector interests, with the state transforming public services into tradable financial assets that yield return. In this sense, similarly to what was observed by Lange, in contemporary capitalist economies, the state has become an instrument of particular classes of capitalists, especially rentiers and large business owners. By restricting wealth accumulation capacities for some while simultaneously promoting wealth concentration among others, the state has actively contributed to rising wealth inequalities and limited social mobility.

The paring down of welfare provision since the 1980s has coincided with asset price inflation. In the United States, Great Britain, and numerous other countries where residential real estate markets emerged, the housing market came to be relied upon for emergency credit, and cash flow to pay school fees and for private medical care. This has alienated the property-owning middle class from a welfare state for which that class pays but does not need because it can generate cash flow from property.

Rising asset prices generate a more unequal distribution of wealth by increasing the value of wealth that must be acquired to secure a position in the next wealth class. At the same time, the growing credit possibilities of rising asset values reinforce the floor preventing demotion into a lower social class. In light of asset price fluctuations, diversity and stability of the wealth portfolio, and the credit practices associated with such portfolios, thus have a defining role in both upward and downward movements across classes.

This asset dependence is specific to particular classes because they have different kinds of assets. Different kinds of assets have different credit implications and practices associated with them and these different credit implications and practices may ease cash flows in particular classes to prevent downward social mobility. But increasing asset inequality makes upward social mobility more difficult. In this way asset inflation and growing wealth inequalities restrict social mobility and give rise to industrial feudalism.

Print Friendly, PDF & Email


  1. Skunk

    This topic has always interested me. I’ve sometimes wondered if rigidity in the system precedes feudalism rather than the other way around. Studies of cultivation patterns of the time show that during the high middle ages, marginal land was increasingly coming under the plow. This is one way of looking at rigidity in a system– from the pure standpoint of ecosystem carrying capacity in light of the agricultural technologies. Where the carrying capacity of an ecosystem is being pushed excessively or exceeded, this tightens up the system in terms of resources. But another way to look at rigidity is in more of a social sense, such as whether or not there is an escape valve for those who want to exit the system. Exiting the feudal system was very difficult to do during the middle ages. Fluid capital was rare, social mobility was very limited, etc., thus giving peasants (and even clergy) few options. Part of the reason they were tied to their stations in life was that, for the most part, there was nowhere else to go. The absence of other options was an aspect of the nobles’ power.

    Of course the Black Death created demand for labor and urban life began to grow, etc. Fluid capital began to circulate, allowing for greater mobility. But another thing that happened was that so-called frontiers were discovered that allowed an outlet for the highly dissatisfied to exit the system. Here I’m not getting into the questionable ethics of frontiers, but just considering the rigidity of the system. From the point of view of the nobility, dissatisfied workers in the system could now just leave, which was a threat to the nobles’ power. It may have forced elites to make a few concessions.

    I think something similar could be happening today. The carrying capacity of the world has likely been exceeded. This might be difficult to prove definitively, but surely the carrying capacity is tied in some ways to the “waste dumps” of the atmosphere and oceans, both of which are showing serious signs of saturation with human pollutants. The disappearance of habitat and species is another indication. Above all, where can you go on the planet where there is a low population density of human beings and the freedom to chart your own course outside of the prevailing systems? Not many places. It’s interesting to consider whether this growing rigidity in the system can be a prelude to rigidity in class structures and political systems.

    1. Dr. G.

      We now have “waste dumps” of people. We call them homeless and thugs. The latter are still of financial benefit to US society because there are many systems that “feed” off of them, e.g., the criminal justice system, the for-profit prison system, agriculture, etc.

      Tent makers are making some dough from the homeless, and drug dealers make money on both underclasses. So too are gun manufacturers and the funeral industry and money lenders. This latter has large margins.

      A major part of the problem is that there is no status in doing business with this sector, maybe with the exception of the funeral and weapons industry.

      Class and status is more than just money made, or property owned, it’s also about the nature of one’s clientele.

      1. Carla

        “Tent makers are making some dough from the homeless” — so are armies of social workers and lots of non-profit functionaries.

        Rather housing and feeding people in this country, we prefer to build and maintain an entire infrastructure of do-gooders who get paid middle-class salaries to minister to the least fortunate among us. That non-profit industrial complex is dedicated to perpetuating itself first. If some people are incidentally housed or fed, that’s okay. But nothing must threaten those middle-class positions. Heaven forbid.

      2. Robin Kash

        There are differences between social and economic classes. There’s genteel poverty. The oil-rich Clampitts would never be at home at a Gugenheim champagne reception.

    2. Susan the other

      We’d have had “nowhere else to go” long, long ago were it not for the combustion engine and all that oil. So one argument this leads to is that “mobility” has polluted the planet and given us no real choices left but to clean it up and maintain it. We need a better term for our predicament than “feudalism” because life really offers us few choices in the end. No matter how much money we print. Like printing up certificates of insanity exchange.

      1. Susan the other

        And also too, since when is social “mobility” the antidote for feudalism? The antidote for feudalism is equality – not mobility. “Mobility” is an empty word like “freedom”. Conceivably, capitalism could continue to create a society of very socially mobile people. What would that look like? I think it would be godawful. So awful that, in my imagination, it would be based on being able to turn your back on being a cog in a hopelessly corrupt machine but not have any viable alternative. Like the Russians used to say, “In America you are free – free to starve to death.” So that leaves no government at all – sort of like what we now have.

        1. Robin Kash

          Thanks for the comparison! Mobility seems industrial feudalism’s relief valve in lieu of equality. The prospect of mobility turns workers against one another. It is an engine of competition.
          Mobility is getting a nicer treadmill.

    3. Kouros

      East European countries have not experienced the same levels and timing of feudalism as in the west.

      In fact, the tying of peasants to the land was experienced in eastern europe hundreds of years after the dismantling of feudalism in western europe. For instance, in the Romanian principalities, it serfdom was introduced in 1600 by a “royal” decree, with the ruler aceeding to the landlords’ demands as a price to war effort.

      As for where to go, apparently Siberia is a neat place, plenty of space, arable land and not expensive (some even given for free), quite a lot of freedom. This American guy seems quite honest about it:

      1. Robin Kash

        Thanks for that link. Sounds a lot like farming in the US used to be, back in the day. Land prices in the US being what they are, I’d not be surprised if aspiring your farmers might make the trip. An Iowa acre is presently 9-10k, per.

  2. Sound of the Suburbs

    The inequality problem is a lot easier to explain than you think.
    I have looked at a slightly longer timeline and it has all become clear.
    You just need to go back a little bit further, not that far.

    Mariner Eccles, FED chair 1934 – 48, observed what the capital accumulation of neoclassical economics did to the US economy in the 1920s.
    “a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion of currently produced wealth. This served then as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied themselves the kind of effective demand for their products which would justify reinvestment of the capital accumulation in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped”

    A few people have all the money and everyone else gets by on debt.

    Is that why Keynes added redistribution?
    Yes, it stopped all the wealth concentrating at the top.
    A strong, healthy middle class developed in the US.

    Reagan removed the redistribution and inequality soared as things returned to the old normal of neoclassical economics.

    Everything has got mixed up.
    Capitalism brings prosperity to all.
    People remembered Keynesian capitalism when that was true.
    This has redistribution built in.
    Remove the redistribution and you go back to what it was like before the redistribution was added.

    1. John Anderson

      All said is so true. I remember living in the big middle class of the 50’s to 70’s. Two thousand years ago there was an infinitely wise man who taught about money, that “one cannot serve two masters….. .” Today, the evil wins.

  3. Michael Hudson

    The paper’s theories are not formulated in reference to the concept of economic rent — the different KINDS of rentier wealth (land rent, patent-monopoly rent, financial privileges, etc.) So it misses how industrial capitalism has turned into finance capitalism, with the financial sector taking the lead (“the mother of trusts”) in organizing rent-extraction in various forms — and loading it down with debt.
    Curiously, the paper suggests that access to credit provides upward mobility. That phase may now have ended.

    1. Pate

      Well no wonder “privatization” – rentierism’s best pal.

      (Apologies. I just wanted the privilege of a wee exchange with the Michael.)

  4. Mikerw0

    So, what is the answer? How do we break out of the vicious cycle? The problem and issue is quite well argued and documented.

    The economic-political apparatus is fully controlled by the elites who are getting what they want in every situation. All major branches of government are owned by them and if the truth is told one really can’t distinguish the Ds and Rs (other than which elites they service and their rhetoric).

  5. MT_Wild

    It’s the exposure to ideas like this, whether right or wrong, that keep me coming back to NC everyday. And of course the commentary :)


    1. SufferinSuccotash

      Agree totally, and in this case I think the authors are definitely on to something. But there’s a question of terminology which needs to be cleared up (I’m not sure how), and that’s the use of the term “feudalism”. As an ex-history teacher I tend to get very edgy over anachronistic labelling. This isn’t the tenth century in Europe. The feudal system then consisted of a network of mutual obligations of the sort which we don’t find at, say, Amazon redemption centers. The difficulty may be that the earliest students of the problem were Marxists for whom anything that wasn’t capitalism or socialism had to be feudalism. What we’re dealing with now is something else again.

  6. Rodney Field

    Today Rabobank said: “the recent collapse in crypto is likely to have forced many Americans to think about the need to re-join the labour force again, so capping wage pressures”

    Capital is celebrating a loss in equity prices because they see it as a way to kick out the peasants (whom they call “retail”). The fact that they care more about getting “retail” out than they do about the prices themselves makes it pretty clear that this is a battle of ownership, not profits.

    1. deplorado

      As comedian JP Sears said, in character, in one of his sketches, paraphrasing, “profits are for chumps, the real elite is after control”

  7. Joe Phillips LCSW

    Please check out Firewall Economics. FE keeps markets for desperate necessities out of the private sector. If Capitalism and Socialism went to arbitration, FE would be the compromise that we can all live with.

  8. James McRitchie

    More equitable distribution of wealth begins with reporting the current distribution of corporate stock. In 2022, I will focus more on employee ownership as a source of empowering workers. My initial batch of a dozen shareholder proposals focuses on getting companies to disclose share incentives (and voting power) awarded to employees at all levels. Once we have the basic statistics, we can then argue that reallocating incentive shares to lower-level employees will increase productivity, reduce wealth inequality, and have many other benefits to corporations, employees, and society. See

Comments are closed.