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At least nominally, capitalism embodies and sustains an Enlightenment agenda of freedom and equality1). Typically there is freedom to trade and equality under the law, meaning that most adults – rich or poor – are formally subject to the same legal rules. But with its inequalities of power and wealth, capitalism darkens this legal equivalence. As Anatole France (1894) noted ironically: ‘The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread’. But this does not mean that legal equality is unreal or unimportant. On the contrary, legal systems enshrining such equality have been beacons of prosperity. Evidence gathered by Richard Wilkinson and Kate Pickett (2009) shows multiple deleterious effects of inequalities of income and wealth. Using data from twenty-three developed countries and from the separate states of the United States, they observed negative correlations between inequality and physical health, mental health, education, child wellbeing, social mobility, trust and community life. They also found positive correlations between inequality and drug abuse, imprisonment, obesity, violence, and teenage pregnancies. They suggested, but did not establish in detail, that inequality creates adverse outcomes through psycho-social stresses generated through interactions in an unequal society. A massive literature . too extensive to review here . examines the relationship between inequality and economic performance (Galbraith and Berner, 2001). Some argue that inequality is a necessary foundation for capital accumulation. But Robert J. Barro (2000) found that, after introducing controls for education, fertility, and investment, there is no significant correlation between inequality and economic growth. While some inequality provides high-powered incentives for entrepreneurs and other high-flyers, an unequal society also wastes the talent of many on middle and lower incomes who have less access to high quality education, sub-cultural support, and financial backing2). The development of secure financial institutions, including credit money and the sale of debt, is an historic book-end that conveniently marks the emergence of capitalism in England around the eighteenth century. Capitalism, as its name suggests, is about capital. If we use that word in its longstanding business sense of money, or the money value of collateralizable assets invested in production (and drop the different meanings given to the word by economists and sociologists) then capital-ism points to the institutions of property and finance that make monetized investment and collateralization possible (Hodgson 2014, 2015a). In my book Conceptualizing Capitalism, I propose a definition of capitalism that includes private property, widespread markets, widespread employment contracts and developed financial institutions that involve credit money and the sale of debt. The development of financial institutions was crucial to capitalism’s birth and take-off. Note that neither markets nor private property are sufficient to define capitalism, because they have both existed for thousands of years (Hodgson 2015a). What are the mechanisms within capitalism that exacerbate inequalities of income or wealth? The following section briefly considers the Marxist approach, based on the labour theory of value. The second section considers factor asymmetries between labour power and capital assets. These may be seen as possible types of exploitation within capitalism, and pointers to possible sources of increasing inequality within the system. The third section discusses whether markets are the source of inequality under capitalism. The fourth section argues that the institutional sources of inequality under capitalism are more to do with capital (when appropriately defined) than markets. The fifth section includes some policy suggestions and concludes the essay.