No, and the reverse is not the case either. Even if one may have the impression that capital is remunerated without sweat, and that "money doesn't work - you do" to use the slogan of the 99% initiative, no factor of production is inherently more deserving than another.
The factors complement each other
Writing this post relied on work (the time I spent on it) as well as capital (my computer and the software I used). Is one of these two ingredients more relevant than the other? Trying to establish a hierarchy is illusory because it would not have been possible to write the text without one of the two.
The fact that capital is remunerated is clear evidence of its usefulness to businesses. Unless one believes that borrowers are forced to pay a compensation for the capital used, and have been for centuries, their willingness to pay for capital indicates that they find it worthy. Of course, any producer prefers to have access to cheaper inputs, but that applies to all of them, including labor.
What does the theory tell us?
A simple theoretical analysis illustrates the role of capital in possible inequalities (the detailed presentation of the analysis is available here). Consider an economy operating over two periods, with two types of households: capitalists and workers. In the first period, both types provide labor used by one sector producing consumption goods and another sector producing capital. Only capitalist households can buy the capital produced and resell it in the second period. In the second period, only the consumption good is produced using the labor provided by all households and the capital.
This simple model includes heterogeneity between households because only capitalists can hold capital. Workers can only save through loans to capitalists. Moreover, the capital used in the second period is produced in the first period using only labor. Capital is thus transformed labor, and the only fundamental factor of production is then labor.
One might think that capitalists are at an advantage. But this is not the case. The result of the model is illustrated by the figure below, which shows an indicator of household’s welfare as a function of the share of capital in the production of the consumption good in the second period. If this share is equal to zero (the left end of the graph), production is based solely on labor. Capital is then useless, and is in fact never produced. A share of 50% indicates that only half of the output is paid in wages.
The red line shows a symmetric situation where capitalist and workers households are equally productive, and both earn the same wages. The only difference between the two is the ability of capitalists to own capital. We find that welfare decreases when capital has an increased role, but that the situation is strictly identical for both households.
These two results may appear surprising. Let us start with the fact that an increased role of capital in production (right side of the graph) decreases welfare. The reason is simply that capital does not fall from the sky. It has to be produced, and to do so one has to use labor that cannot be used to produce consumer goods. Since these goods are the ones that provide some well-being, not being able to devote all one's labor to their production is ultimately costly. Life is more pleasant when the available labor is used directly to produce what is needed.
Why are capitalists not advantaged by the fact that only they can own capital? The reason is that capital is not given to them for free. These households have to buy it from the firms that produce it in the first period. This purchase is done in part by borrowing from the worker households. In other words, workers can still own the capital, but indirectly by lending to capitalists. As long as the interest rate on these loans reflects the productivity of capital, it does not matter that they cannot hold it directly. In the end, all households are capitalists.
Capital and Inequality
What happens if households are in different situations? In a first case, capitalist households are more productive and earn higher wages (e.g. because of greater human capital). This situation is illustrated by the blue crosses and disks in the graph. Specifically, the crosses show the welfare of capitalists, while the disks show the welfare of workers. Not surprisingly, capitalists benefit from having a higher productivity. But this is not at the expense of worker households, as their welfare is identical to the symmetric case. The advantage of capitalists is not shared, but it does not penalize either.
In a second case, working households have to pay a transfer to capitalist households in the first period. This can reflect all sorts of things, including fees that capitalists (also bankers) charge for investing workers' savings in capital. The situation then becomes unequal: the welfare of capitalists (green crosses) increases, at the expense of the welfare of workers (green disks), which is lower than in the symmetric case.
Our analysis shows that it is quite possible to generate welfare differences in the model. However, these are not linked to the presence of capital. The figure shows that the welfare gap between households is similar regardless of the role of capital in production (the vertical distance between the crosses and disks of a given color is similar whether one is on the left or right side of the graph). Even if labor is the only factor of production (left end of the figure), inequalities are present.
A fundamental opposition between capital and labor is thus rather sterile. It is quite true that inequalities are present, but they must be treated as such, for example through progressive taxation of income, whatever its source.
