Economic growth depends fundamentally on labour, resources, and knowledge. Labour and natural resources are exhaustible and face hard physical limits, whereas knowledge is not only inexhaustible but also scalable — it can be replicated and applied at near-zero marginal cost.
Because of this asymmetry, owners of labour and resources are inherently constrained: each individual has only so many hours to work, and resources are finite. In contrast, knowledge can be accumulated without bound, particularly by firms and institutions that consolidate it in the form of patents, trademarks, data, algorithms, and proprietary processes. Unlike individuals, companies can continually build and protect these intangible assets, generating durable rents.
Over time, this structural difference implies that the share of income accruing to labour must decline. Even if human capital embodies some knowledge, individuals are limited repositories — they eventually retire, die, or lose bargaining power — while firms preserve and scale their knowledge indefinitely. Labour’s bargaining position erodes further as technology substitutes for human effort, and as intellectual property protections allow firms to capture a growing share of value.
Thus, in a free market capitalist system, where ownership of firms and capital determines who controls accumulated knowledge, returns flow increasingly to capital rather than labour. The process is self-reinforcing: capital finances further knowledge accumulation, which in turn generates higher capital returns relative to wages.
Therefore, absent strong countervailing institutions or redistributive mechanisms, capitalism has an inherent tendency to concentrate wealth and income. It is not a temporary imbalance, but a structural feature: the scalable, inexhaustible nature of knowledge ensures that ownership of companies and capital systematically outpaces the earning capacity of finite labour and resources. In this sense, free-market capitalism almost always leads to rising inequality over time.