Lewis Corey

The Decline of American Capitalism


PART SIX
Concentration of Income and Wealth


CHAPTER XVII
Class Distribution of Income

WHILE some capitalist apologists, contrary to the facts, have insisted that the distribution of income was becoming more equal, others have used economic theory to justify the existing unequal distribution. It was assumed that “fixed natural laws” determined “distributive shares,” according to productive function performed. The theory was fundamental in the system of the American economist, John Bates Clark:

“There are fixed laws of distribution which society is not at liberty to violate ... Where natural laws have their way, the share of income that attaches to any productive function is gauged by the actual product of it ... Wages are the whole product of labor ... Every laborer is paid the exact equivalent of what he produces and capital receives the exact equivalent of what it produces ... Natural law, so far as it has its way, excludes all spoliation.” [1]

The animus is clear – the same animus of the efforts to disprove the Marxist theory of value by means of the subjective theory of marginal utility, now discredited: labor is not necessarily exploited under the social relations of capitalist production, and its share of the national income, however small, is fixed, natural, and just.

A variant of the “fixed shares” theory is the “law” formulated by Vilfredo Pareto, the “philosopher” of fascism, that income distribution is essentially the same in all countries and at all times. Analysis has demonstrated, however, that the “law” is mathematically inaccurate and statistically disprovable. (It is also disproved by Pareto’s Italy, where, since the advent of fascism, the unequal distribution of income has become more unequal.)

These theories rest on the assumption, unreal and apologetic, of an economic order based on “natural law,” in which the free play of economic forces assures functional harmony and the “larger good.” But there is no such order. Economic forces are not eternal, they are historical. They work, not in an unreal world of “natural law,” but in the midst of class rule and exploitation, of social-economic change and conflict which affect the movement of economic forces, including the distribution of income. The only “eternal” aspect of income is that, under a system of private property and class rule, its distribution must be unequal, with the producers getting the smallest share. There are long-time movements and short-time fluctuations, but concentration of income always tends upward. [1*]

Capitalism augments the unequal distribution of income. One of the most competent investigators of the subject writes: “General historical knowledge would lead one to infer that numerically the income inequality must have been smaller in pre-capitalist Europe than at present, if only for the reason that incomes were then absolutely lower and that the lower limit of incomes is more rigid than the upper ... In those countries in which personal distribution of income has been measured for some time past the preponderance of evidence is toward increasing inequality of incomes.” [2] In the earlier stages of capitalism there was a “broadening” of income concentration at the top of the social pyramid, because of the emergence of rich bourgeois merchants and speculators; but concentration was increased relatively to the mass of the people, and kept on increasing. The curve of income distribution in capitalist society is not constant; its upward movement and fluctuations profoundly affect social-economic maladjustments and disturbances ...

In the colonial and early national periods of the United States, the unequal distribution of income, largely because of an agrarian economy, was not great, although increasing. It increased tremendously during the Civil War, because of the growth of industrial capitalism and, particularly, of speculation. A slight downward tendency was apparent from 1870 on; but this was temporary and was accompanied by a multiplication of millionaires – 4,000 in 1892 compared with probably 500 in 1860. [3] Concentration thereafter grew swiftly, in the period of relative economic decline; the share of the national income received by the richest 1.6% of the population rose from 10.8% in 1896 to 19% in 1909 [4], an increase of nearly 100%. In the early years of the World War concentration mounted to new heights; incomes of $100,000 up rose from 2,290 in 1914 to 6,633 in 1916 [5], a year of extraordinary profits nourished by speculation and the butchery of European peoples. Concentration of income tended downward after the United States entered the war, because of high taxation and the depreciation of fixed incomes through sharply rising prices. Fortunes connected with war industries and speculation increased enormously, however, and many new fortunes were created. Much of the decrease in concentration was nominal, and all of it was temporary. A large part of corporate earnings, to escape taxation and expand production, was reinvested in the enlargement or modernization of plant and equipment. This, in the post-war period, accrued to the benefit of stockholders in the form of high cash and stock dividends; the latter alone amounted to $4,240 million in 1922-23. [6]

The wholly temporary downward fluctuations of the war period were used to back up the argument that income was being “equalized” and “democratized.” It was backed up by more “proof” in the form of an apparent reduction of income concentration in 1921-22. But those were depression years, when swollen incomes are deflated and all incomes move downward. This is not, however, an indication of more equal distribution of income, for millions of workers, farmers and professionals stop being income receivers. Mass unemployment augments the concentration of income. In 1932, one study reveals, salaries and wages were 40% lower than in 1929, property income only 31% lower. Wages alone were 60.2% lower, twice the loss in property income, indicating greater concentration of income in depression. [7] Moreover, throughout 1923-29, when the apologists insisted that income distribution was becoming more equal, it was in fact becoming more unequal (Table I). The concentration of income was greater than in any pre-war period, and greater than in any other country in the world.

TABLE I
The Movement in the Distribution of Income, 1920-29

 

Incomes of
$10,000 and Up

Incomes of
$3,000 to $10,000

Wage-Workers

Farmers

YEAR

AMOUNT
(millions)

INDEX

AMOUNT
(millions)

INDEX

AMOUNT
(millions)

INDEX

AMOUNT
(millions)

INDEX

1920

$6,761

100.0

$9,132

100.0

$29,540

100.0

$9,394

100.0

1921

  5,056

  74.8

  7,497

  82.1

  23,353

  79.1

  5,562

  59.2

1922

  6,211

  91.9

  8,225

  90.1

  24,553

  83.1

  6,097

  64.9

1923

  6,812

100.8

10,689

117.0

  28,691

  97.1

  6,796

  72.3

1924

  7,910

117.0

11,257

123.2

  29,051

  98.4

  7,092

  75.5

1925

10,783

159.5

*

*

  30,762

104.1

  7,836

  83.4

1926

10,877

160.9

*

*

  32,604

110.4

  6,941

  73.9

1927

11,642

172.2

*

*

  32,884

111.3

  7,119

  75.8

1928

14,472

214.0

*

*

  32,235

109.1

  6,830

  72.7

1929

14,466

214.0

*

*

*

*

*

*

*Not available. Incomes of $3,000 to $10,000 kept on rising; in the case of incomes from $5,000 to $10,000, for which data are available, the index rose from 111.9 in 1925 to 145.1 in 1929.
Source: Incomes of $3,000 to $10,000 and up computed from Bureau of Internal Revenue, Statistics of Income for the respective years; wages and farmers’ income – W.I. King, The National Income and Its Purchasing Power, pp.108, 132.

While the farmers’ income fell disastrously and wages almost stood still, the income of the upper bourgeoisie (incomes of $10,000 up) rose 114% in nine years. Substantial gains were also made by the intermediate incomes of $3,000 to $10,000. Gains were greatest in the higher brackets. The number of persons with incomes of $100,000 up increased from 4,182 in 1923 to 14,816 in 1929, compared with 6,633 in 1916; they reported a total income of $1,127 million in 1923 and $5,088 million in 1929. [8] Income was redistributed – upward.

Any downward fluctuations in the concentration of income are not only temporary, they must be temporary. Capitalism is based upon private property in the means of production; and property constitutes an economic and legal claim upon income, which must be satisfied by the labor of the producers. The concentration of income becomes constantly greater under capitalism because it is an economic system in which wealth breeds more wealth than in other systems. Exploitation of the workers yields surplus value and income, part of which is invested, is capitalized, yielding more surplus value and new income. As the capital needs of industry grow, under pressure of expansion and the increasingly higher composition of capital, capital and capital claims grow and impose a larger tribute on production, which does not correspondingly grow. Profits and interest rose from $10,998 million in 1923 to $15,816 million in 1929, an increase of 44%; production rose only 20%. This, since ownership of capital and capital claims is highly concentrated, was the solid basis of the growing inequality of incomes.

By and large, the farther an occupation is from directly productive work, the larger the income it yields. This is the functional or occupational aspect of class exploitation in a society based on private property. For 1916, the Bureau of Internal Revenue reported (a practice since discontinued) the occupational distribution of income. The statistics, covering incomes of $3,000 up, give the following interesting results:

Labor, 2,304 returns, 0.2% of the income reported; engineers and architects, 8,047 returns, 1.2% of the income; intellectuals (artists, writers, journalists, actors, musicians, statisticians, teachers), 13,048 returns, 1.5% of the income; farmers, 14,407 returns, 2% of the income, in a year when agriculture was unusually prosperous; salesmen and insurance agents, 19,517 returns, 2.1% of the income; medical profession, including dentists, oculists, and nurses, 20,348 returns, 2.2% of the income; bankers, 6,518 returns, 3.2% of the income; lawyers, 21,273 returns, 3.8% of the income; managerial employees (superintendents, foremen, and others), 38,388 returns, 4% of the income; brokers and real estate and securities salesmen, 17,878 returns, 6.1% of the income; corporation officers, 53,060 returns, 11.3% of the income; industrial capitalists (manufacturers, mine owners, and lumbermen), 27,504 returns, 11.4% of the income; merchants, 54,363 returns, 13.2% of the income; financial capitalists, investors, and speculators, 85,465 returns, 26.6% of the income. [9]

Labor is naturally the smallest of the groups. The more parasitical “functional” occupations (brokers, salesmen, lawyers) secure a fair slice of the pie. Engineers and other professional workers make a poor showing; they acquire large incomes only when they cease being professionals and become primarily promoters and capitalist exploiters. The largest part of the pie is eaten by the capitalists, particularly the financial capitalists, investors, and speculators.

The direct appropriation of surplus value, of workers’ unpaid labor, is the source of capitalist income. On the basis of this a struggle goes on to secure larger incomes and incomes from any source ... Political power not only sustains class rule and the claims of property to income, it becomes itself a source of income. Politicians plunder the public finances and sell favors to individual capitalists, which in turn become sources of income ... The vast natural resources of the United States passed into private ownership mainly through the manipulations of corrupt politicians. The Western railroads were built with grants of public money and public lands, yet their ownership and income accrued to capitalists ... The manipulation of political power for personal ends became after 1860 an increasingly important source of income ... This was true also during the World War and the postwar period. The conspiracy to steal the government’s oil reserves in Teapot Dome, which was only accidentally frustrated, revealed a cesspool of political corruption ... Seventeen officers and directors, including the president, of an oil company mixed up in the Teapot Dome scandal, were sued by stockholders for the return of $6,000,000 to $8,000,000 ... The air-mail contracts let by Postmaster General Walter F. Brown, of the Hoover Administration were enmeshed in conspiracy. Enormous profits were made by officers of the favored lines; the president of one company turned an investment of $253 into $9,514,000 ... Contractors have been making as high as 90% profit on army airplane orders ... Officers of corporations not only receive inflated salaries and profits on their stock, but they have other means of adding to their income. One is the “bonus” system. Five officers of one company received bonus payments of $2,225,000 in 1929. (The company is bankrupt.) Three officers of another company received $2,770,000 in 1931-32. In a third company the president in 1931 received $2,627,000 in salary and bonus payments. Stockholders’ protests have been unavailing ... Another bankrupt company paid $1,300,000 in 1923-32 to three bankers serving on its finance committee ... The chairman of the Chase National Bank received in four years salaries and bonuses of $1,500,000, made millions speculating in the bank’s stock while the bank itself was losing money, and upon his retirement was voted a life “salary” of $100,000. [10] ... Corporation lawyers amass millions by a little legal trickery here and there ... Corporation directors use their influence to get business for other interests with which they are identified, palm off property they own on the corporations they serve, and speculate on inside information ... Bribery is rampant in business. “There are few branches of American business which are not honeycombed by its corroding influence. The average politician is the merest amateur in the gentle art of graft compared with his brother in the field of business. There is more graft in business than there is in political life.” [11] ... Where, under these conditions, are the “fixed distributive shares” determined by performance of productive functions?

[Diagram 13: Class Distribution of Income 1920-29]

In 1928, wage-workers received 34.3% of the total national income, clerical workers 6.7% (Table II). The upper bourgeoisie, only 0.8% of the gainfully occupied, received 21.8% of the national income; the bourgeoisie as a whole 51.9%, although they constitute only 15.9% of the gainfully occupied and the workers 58.5%. American workers probably receive the smallest share of the national income; the share of the English workers is approximately 45%. [12]

TABLE II
Class Distribution of the National Income, 1928

CLASS

NUMBER
IN CLASS
 

PER-
CENT
 

MONEY
INCOME
(millions)

PER-
CENT
 

AVERAGE
INCOME
 

TOTAL
INCOME
(millions)

PER-
CENT
 

Working Class:
    Wage-Workers
    Clerical

 
27,750,000
  4,750,000

 
  58.5
  10.0

 
$32,985
    6,412

 
  37.4
    7.3

 
$1,189
  1,350

 
$32,985
    6,412

 
  34.3
    6.7

Farmers

  7,400,000

  15.6

    6,830

    7.7

     923

    6,830

    7.1

Bourgeoisie:*
    Lower
    Intermediate
    Upper

 
  4,300,000
  2,880,000
     382,241

 
    9.0
    6.1
  0.8

 
  11,075
  14,700
  16,198

 
  12.6
  16.6
  18.4

 
  2,575
  5,110
42,400

 
  12,675
  16,300
  20,998

 
  13.2
  16.9
  21.8

Total

47,462,241

100.0

$88,200

100.0

$1,858

$96,200

100.0

* Lower bourgeoisie, incomes below $3,000; intermediate, incomes of $3,000 to $10,000; upper, incomes of $10,000 up.
Source and methods of computation: Money incomes, excluding “imputed” income on durable consumers’ goods, was $81,000 million (M.A. Copeland, The National Income and its Distribution, Recent Economic Changes, v.II, p.763); to this is added $2,400 million for food produced and consumed on farms, and $4,807 million for realized speculative profits (Statistics of Income, 1928, p.12). Total income is the money income plus business savings – $6,600 million added to corporate surplus and an estimate of $1,400 million for reinvested earnings of non-corporate enterprises (Statistics of Income, 1928, p.125). Workers’ income is W.I. King’s estimate of wages plus an allowance for other income. Income of the upper bourgeoisie is the reported income plus tax-exempt income and an allowance of 10% for under-reporting; this allowance of 10%, according to Maurice Leven, Income in the Various States, p.286, “seems to be a conservative estimate, and it is quite probable that, if anything, it is too low.” Speculative profits are included because, unlike “imputed” income, they are realized money income with which the recipients may buy goods and services, and which profoundly affect investment, production, and consumption, and, consequently, the whole cyclical movement.

The distribution of income is closely associated with class relations. While it alone does not determine the character of a class (that depends primarily upon its place in the production process), income throws light on changes in class relations and within classes.

In 1923-29, the bourgeoisie increased its share of the national income; as usual it took most of the gains of prosperity. There was, however, a growing concentration of income, more than in former years, within the bourgeoisie. Incomes of $5,000 to $10,000 rose from 455,442 in 1920 to 658,039 in 1929, or 45%, while incomes of $10,000 up rose from 226,120 to 374,032 or 65%. Concentration also increased within the upper bourgeoisie. Incomes of $100,000 up rose from 3,649 to 14,816 or 306%, and incomes of $1,000,000 up rose from 33 to 513 or 1,454%. The net income of the million-dollar-income group rose from $727 million in 1920 to $4,368 million in 1929, an unprecedented absolute and relative increase. [13] At the same time the upper bourgeoisie, and to a lesser extent the intermediate bourgeoisie, became more markedly a class of financial and speculative capitalists. As finance capital and the banks strengthen their control over industry, financial corporations “earn” the largest profits; this is an expression of the increasingly speculative character of industry under the conditions of monopoly capitalism. The upper bourgeoisie is separated from direct participation in production; as a class of financial and speculative capitalists (with a large element of passively parasitic rentiers) it roams the field of industry, plundering where it may. In 1920-29, the upper bourgeoisie “earned” $24,064 million in realized speculative profits, of which $8,000 million were “earned” in the two years 1928-29. They are the masters of industry.

The middle class, the intermediate and lower bourgeoisie with incomes below $10,000, made great gains both in numbers and in income; the income gains ranged from 40% to 50%. It was the heyday of the middle class. But this class is no longer the old middle class of independent small producers. In 1924, 125,559 individual, non-corporate manufacturers reported net profits of only $380 million, compared with $3,437 million for corporate enterprises. Of the total net profits of $4,755 million reported by 1,645,971 individuals in business (an average of only $2,900), $3,150 million was “earned” in trade, amusements, hotels, professional service, and similar occupations. In corporate manufactures, 43,984 of the smaller producers, 50% of the total, made only 1.7% of the aggregate net income, while 967 of the larger producers, 1.1% of the total, made 65.6% of the net income; in 1929, 1,289 of the larger producers, 1.3% of the total, made 75.6% of the aggregate net income. [14] Thus the small, independent industrial producers, the essential element in the old middle class, merely linger on, an economic anachronism deprived of real power. Their importance steadily decreased in 1920-29. The real gains were made by the “newer” elements of the middle class, concentrated in the intermediate bourgeoisie with incomes of $3,000 to $10,000. More than half of them, the most important group, are corporate employees; in 1928 about $7,000 million of the $14,700 million income of the intermediate bourgeoisie was derived from salaries, commissions, and directors’ fees. Another $788 million came from dividends and possibly $1,000 million from speculative profits. This group, particularly those in the income class of $5,000 to $10,000, performs the “professional” function of management in corporate industry, because of the separation of ownership from management by monopoly capitalism and the multiplication of stockholders. It is directly dependent upon and is wholly identified with the interests of monopoly capitalism – the real “new” middle class. Most of the elements of the old middle class, the small producers, merchants, and professionals, are concentrated in the lower bourgeoisie. Their income gains were considerable; but they were accompanied by an intensification of competition and a pressure for jobs which created increasing class insecurity, now evident in the crisis which afflicts the small producers and storekeepers, the technicians and professional workers. For the growth of the middle class, identified with all the maturing elements of capitalist decline, was a final burst of splendor before the coming of darkness. Many middle-aged workers, thrown out of work by technological changes, took their petty savings and became small storekeepers, sharpening the struggle to survive. The automobile gave many the chance to become “independent” owners of garages and gasoline stations. Rationalization of industry gave work to many technicians, but also developed the conditions of eventual displacement. Much of the middle class growth, however, represents cancerous elements of social-economic parasitism, multiplying the burdens upon productive labor. The more parasitic occupations (advertising, merchandising, speculation, the law) fattened upon an inflated prosperity. But the middle class grew faster than its economic opportunities. The number of students in universities, colleges, and professional schools, all of them middle-class aspirants, grew from 521,754 in 1920 to 919,381 in 1928 [15], creating a constantly greater mass of actually and potentially unemployed and unemployable “intellectuals.” They now swell the surplus population.

The “fixed productive share” of the farmers moved downward. In the “deflation” of 1921, their share of the national income fell disastrously; during the next four years a small part of the loss was painfully recovered, only to slump again in the peak years of prosperity 1926-29. The farmers increased their productivity over 30% and decreased only 25% as a proportion of the gainfully occupied, yet their share of the national income fell to one-half the pre-war share. The farmers’ share (including food produced and consumed at home) was only 7.1% in 1928, although they were 15.6% of the gainfully occupied. And the fall was absolute, affecting per-capita income. The farmers’ share of the national income began to fall after the Civil War (defeat of the slave power was also an agrarian defeat, as it assured the supremacy of capitalist industrialism). The fall was temporarily reversed by rising prices after 1900, up to and including the World War; but it reasserted itself on a more devastating scale during 1921-29 and the 1930-34 depression. At the same time, the farmers’ mortgage burden rose from $7,857 million in 1920 to $9,468 million in 1928, exclusive of over $3,000 million of other debts. The burden was all the greater because of the fall in agricultural prices and income, and in the “value” of farms from $71,791 million to $58,141 million. As a business proposition, farming was almost a total loss; the rate of return on operators’ net capital investment fell from 5.4% in 1919 to 3.7% in 1928, with only 1.6% as the average for 1920-28. [16] Non-farmer elements increased their tribute from agriculture; payment of interest to non-farmer mortgage holders practically trebled between 1909 and 1927. [17] The sharp drop in the farmers’ share of the national income expressed the crisis and economic decline of agriculture. But this did not affect all groups alike. The inequality of agrarian incomes was augmented. A small upper layer of capitalist farmers was relatively prosperous. Owners of leased farms enlarged their share of agricultural income 60% between 1909 and 1927. “Retired” farmers drew an increasingly large real income from their $1,000 million of farm mortgages. [18] The mass of farmers were, however, impoverished, expressed in the growth of tenancy from 38.1% in 1920 to 42.4% in 1930 [19], the largest increase in thirty years. By 1932 the farmers’ gross income had fallen to 44% of the 1929 level [20]; the fall in net income was even greater. The result is a profound change in agrarian class relations; the poor farmers, the majority of tenants and small owners, are definitely thrust into the peasant class, while the position of the intermediate middle class farmers becomes continuously more precarious. [2*]

All through this period, while income was being “equalized” and “democratized,” wages constituted a diminishing proportion of the national income. The wage-workers’ share fell from more than 40% in 1920 to 37.4% in 1928. (Their share in the total national income was still lower, only 34.3% in 1928.) Part of the decrease was due to the fact that, for the first time in American history, the number of workers increased only slightly as a ratio of the gainfully occupied, while the better-paid industrial workers decreased. And increasing unemployment cut into the workers’ share. But the larger part of the decrease in the workers’ share of the national income was due to the fact that wages did not move upward in line with productivity, production, and the national income, while the bourgeoisie appropriated constantly more of industry’s proceeds as capital and capital claims were augmented. The majority of working class incomes were at or below the poverty line. In the “paradise” of the Ford automobile plants, the average family income of a worker in 1929 was only $1,711 yearly! The family income of the majority was even smaller. Inequality of incomes within the working class was intensified, especially in the case of the skilled union trades and the unemployed. This inequality, along with craft and racial prejudices, helps to create and maintain divisions among the workers, which the employers exploit.

The concentration of income means poverty among the many and swollen incomes among the few; underconsumption among the masses and conspicuous overconsumption among the classes. It is urged that the national income, and this means essentially the existing productive equipment, is insufficient to abolish poverty. Thus Irving Fisher said in 1928: “If the share of the richest class were divided up to increase the share of the lowest income group, comprising nearly two-thirds of the population, it would not go far.” Another economist agreed, and added: “A basic trouble is that, in spite of our unprecedented wealth, our national product is not yet large enough to supply anything but the barest essentials to everyone, even if it were equally divided.” [21] That is much too simple, and evasive. For in 1929, a more equal distribution of the national income (inconceivable under capitalism) would not merely have wiped out the worst forms of poverty, it would have materially improved the living conditions of the masses as a whole. This was all the more possible if wasteful, useless goods and services had been replaced with more necessary things, and if the enormous excess capacity of industry had been utilized. The mere elimination of these social-economic wastes, inseparable aspects of the social relations of income inequality, would enormously increase real social income and mass welfare. All arguments to the contrary are mere repetitions of Pareto’s “law” that welfare can be increased only by raising the national income a justification of capitalist distribution. It is necessary, of course, to raise the total income. But the unequal distribution of income is interlocked with all the class-economic forces which prevent a full use of the existing and potential social forces of production: low wages, excess capacity, recurrent cyclical crises and breakdowns, limitation of technological progress, and the mass disemployment of the decline of capitalism. [3*]

Inequality of income is not merely an expression of capitalist exploitation and injustice. It is itself an economic force, expressing and aggravating all the maladjustments and disturbances of capitalist industry:

Thus the concentration of income not only deprives the workers of a larger immediate share in income and consumption, it prevents a fuller development of production, income, and consumption in prosperity, and thrusts them downward in depression. For unequal distribution of income is the synthesis of all the forces of cyclical crisis and breakdown. [4*] Unequal distribution is dynamic, not stationary; its variations, within the limits of the long-time upward trend, correspond closely with the cyclical movement of prosperity and depression. As prosperity moves upward, the concentration of income is augmented from three sources: more intensive production and realization of surplus value; speculative profits, which are both a redistribution of previously realized surplus value and a manufacture of new claims upon production; and the increasing “profits” of middle class services. Even if wages and mass purchasing power rise, they shrink relatively to the income gains of the bourgeoisie, to the mounting accumulation of capital and capital claims. Both investment and speculation aggravate old disproportions and create new ones. The moment comes when prosperity crashes. The tremendous increase, in 1927-29, in the incomes of the upper and intermediate bourgeoisie, while wages were nearly stationary and farmers’ income moved downward, inexorably prepared the conditions of breakdown and depression.

Some bourgeois economists admit that cyclical fluctuations originate in “the adverse balance of consumption over production,” in the “deficiency” of consumer income distributed by industry. [22] But they insist that the deficiency is not the result of appropriation of profits and concentration of income, that stability is possible without interfering with them. Yet, if industry does not distribute enough of its proceeds as consumer income, is it not because profits [5*] take more than wages? And if investment income increases more than consumption income, is it not because unequal distribution of income favors investors and speculators? The uses of profits are threefold:

  1. Consumption income for the appropriators of profits, their tribute upon labor and production.
  2. Investment income for the progressive expansion of production, a conversion of part of the proceeds of industry into “capital” equipment, which is necessary under any social system.
  3. A surplus which becomes excessive investment and speculation, instead of consuming power.

Even the consumption of the appropriators of profits and their “necessary” investments create maladjustments and disturbances, for they are carried out haphazardly, without regard to the balanced needs of industry. (This is apparent, for one thing, in the constantly greater dependence of production upon luxury consumption.) The maladjustments and disturbances are enormously aggravated, however, by the surplus capital involved in excessive investment and speculation: it means an accumulating deficiency in consumption, expansion of production beyond the capacity of markets, and growing speculative violence. For a time, an unstable balance is maintained by a variety of means; but the balance is eventually upset, and crisis and depression ensue.

Unequal distribution of income is not, however, an independent factor. It expresses all the underlying relations of capitalist production. Hence the liberal economists are stressing secondary and not primary causes when they urge more equal distribution to prevent cyclical breakdowns. (This theory is identified with John A. Hobson; while his emphasis is wrong, his analysis is as suggestive as his earlier, the pioneer, study of imperialism.) For the social relations of capitalist production make an increasing concentration of income inevitable, because of the exploitation of labor and the multiplication of ownership claims. Ownership and exploitation are responsible, not only for income concentration, but also for its disastrous economic results. More equal distribution, under capitalism, could favor only the middle class, and would simply whet its appetite for ownership, investment, and speculation. Essentially the same result follows if income distribution favors the upper layers of the workers, who would save more for the “rainy day,” the savings becoming “institutional” means for investment and speculation. It is necessary to change the social relations of capitalist production. [6*]

As the distribution of income is inseparably identified with the class-economic relations of capitalist production, it is profoundly affected by the decline of capitalism. The lower level of the national income makes more ruthless the efforts of those in economic and political power to get a larger share. Labor’s share moves downward, because of lower wages and the millions of disemployed workers. Capitalist decline strengthens the tendency toward an increase in the most parasitic form of income, the interest on private and public debts. Corporate debt mounts as excess capacity and capital claims rise and production falls. Public debt mounts as government revenues fall and expenditures to “revive” industry rise (and this includes greater expenditures on armaments because of sharpened imperialist rivalry). As imperialism grows, a larger part of capitalist income flows from foreign investment and exploitation; this means more income concentration, for after capital is exported its interest or profit yield creates no income for other classes of the “home” population. From 1900 to 1914, the concentration of income in Great Britain was increased by the income from accumulated overseas investments. [23] Concentration is also increased in the capital importing countries, for in crisis and decline the interest is paid by extorting more from the workers and peasants, in higher taxes and lower wages. And, unlike the experience in the epoch of capitalist upswing, labor’s share of the national income now tends toward an absolute fall. This is particularly marked under fascism, which recognizes that incomes must be limited, thrusts the burden upon the masses, deprives them of the means of resistance, and cuts down on relief and the social services. The movement in the distribution of income becomes one of the most explosive elements of the decline of capitalism.

Footnotes

1*. It is suggestive that engineers, who think they have a “new” approach to economics, merely vulgarize the older unreal concepts. Thus the Technocrats emphasize price, in the manner of the most extreme price economists, but with a slant of their own. Another engineer economist swallows Pareto’s law: “Competition has always distributed incomes according to some sort of a probability curve ... In the same way we could express the probability that any molecule in a mass of gas would have any one of various velocities ... In any particular nation and at any particular stage of social progress the distribution appears to have a certain normal form about which it fluctuates but toward which it always tends to return. In fact, the general form of this normal distribution probably has not changed greatly throughout history.” H.C. Dickinson, The Mechanics of Recovery, S.A.E. Journal (Society of Automotive Engineers), February 1933, p.2. Dickinson, who thinks the economic system “is a mechanism, a machine,” argues that its “instability can be controlled through adjustments of the mechanism itself without disturbing the present competitive economic system.” But the instability is a result of the working of the capitalist system itself. And the “adjustments” needed are not mechanical: they are social, involving class interests and class conflicts. This angle meets the engineer at every turn. How often is he thwarted in the mechanical, functional approach toward the construction of, say, machines and bridges, by the pressure of capitalist profit and vested interests! How often is his suggestion for the installation of safety devices rejected because of their cost! How little attention is paid to his arguments that technology is capable of providing plenty for all!

2*. Yet reformers urge “Back to the land!” as a cure for unemployment. Among the most miserable farmers are many who took that advice in the pre-war days. It is suggestive that what is now urged is “subsistence farms,” that is, farms which are to yield a man and his family merely enough to keep from starvation. Other reformers, however, insist that “farm relief” depends upon the displacement of 2,000,000 more farmers!

3*. This sort of stuff still appears in textbooks used in many American universities: “If incomes were equalized, all would be poor ... The idle rich and other loafers are more conspicuous than numerous, and if they were all set to useful labor the total output of industry would not be substantially increased nor would the burden of toil of the rest of the people be much lightened ... A considerable part of the income of the rich is already being used directly or indirectly for the benefit of the poor in the form of huge donations to philanthropic, scientific and educational institutions, in the form of taxes, and in the form of savings which add to the industrial equipment of society and thereby increase the effectiveness of labor ... The possible gains to the poor from increasing the effectiveness of labor are infinitely greater than the possible direct gains from equal distribution of wealth and income.” L.A. Rufener, Price, Profit and Production: Principles of Economics (1928), pp.803-04. But why can’t the “poor” own the industrial equipment? And why not add that the rich make work for the poor – don’t they hire servants, spend millions on dress and jewels, on entertainments and debauchery, give work to the makers of yachts, Rolls-Royces, and private railroad cars?

4*. “The theory [of Marx] rests on the supposition that wages are a fixed quantity, always near the minimum of subsistence; and further, that labor’s proportion of the national income is ever decreasing ... Marx’ theory is subject to two conditions: (i) that there are only two classes in existence, capitalists and proletariat; and (2) that wages are rigidly fixed and near the minimum of subsistence.” L.V. Birck, Theories of Overproduction, Economic Journal, March 1927, pp.22, 25. After setting up this man of straw, Prof. Birck cleverly demolishes it. But Marx never said that wages are fixed or that there is a fixed minimum of subsistence: that was the Rodbertus-Lassalle “iron law of wages,” specifically repudiated by Marx. Wages may and do rise, under certain conditions; this is itself an aspect of the movement of capitalist contradictions and antagonisms. Wages tend toward a minimum of subsistence, but this is an historical category subject to change; the minimum rises in the epoch of the upswing of capitalism and falls in the epoch of decline. The workers’ share of the national income does decrease; but this is not conditioned by fixed wages and minimum of subsistence, for while wages may rise, profits and capitalist income rise still more. Marx never said there are only two classes (he recognized the existence of landlords, of farmers, of the middle class); but industrialism dominates the class-economic relations of contemporary society, and industrialism is dominated by the relations between the proletariat and the capitalist class, whose antagonism shapes, in general, the movement of other classes.

5*. In this connection, “profits” includes all forms of tribute levied upon labor – profits, interest, rent, “fancy” corporate salaries, excessive charges for professional services, etc. That part of professional income which represents services to workers is a withdrawal of labor consumption; if invested by the professional, it adds to the deficiency in consumption.

6*. Unequal distribution of income exists in the Soviet Union. But it is enormously smaller than in capitalist society; there is no concentration of income in the real sense. Moreover, what income inequality exists has no disastrous economic results, for there is no private ownership in the means of production, no capitalist investment and speculation: income cannot become private capital, a source of economic maladjustments and disturbances, and production is managed according to plan. While income inequality exists in the earlier stage of socialism, the drive is toward continual modification and its final abolition under communism.



Notes

1. Paul T. Homan, Contemporary Economic Thought (1928), pp.27, 59.

2. Simon Kuznets, National Income, Encyclopedia of the Social Sciences, v.XI, (1933), p.223.

3. Lewis Corey, Fortunes, Private: Modern, Encyclopedia of the Social Sciences, v.VI (1931), p.396.

4. W.I. King, The Wealth and Income of the People of the United States (1915), p.231.

5. Bureau of Internal Revenue, Statistics of Income, 1916, p.26.

6. Statistics of Income, 1925, p.13.

7. Simon Kuznets, National Income, 1929-32 (1934), p.14.

8. Statistics of Income for the respective years.

9. Statistics of Income, 1916, p.31.

10. New York Times, September 17, 1933; January 18, 1934; February 9, 1934; December 16, 1932; May 30, 1933; September 8, 1933; September 11, 1933; October 18, 1933.

11. John T. Flynn, Graft in Business (1930), p.55.

12. E. Varga, Economics and Economic Policy, International Press Correspondence, December 2, 1931, p.1094.

13. Statistics of Income, 1931, p.39.

14. Statistics of Income, 1924, pp.11, 123, 176; 1929, p.234.

15. Department of Commerce, Statistical Abstract of the United States, 1931, p.112.

16. Department of Agriculture, Yearbook of Agriculture, 1932, pp.501, 893, 912; Crops and Markets, July 1929, p.254.

17. W.I. King, The National Income and Its Purchasing Power (1930), p.306.

18. Eric Englund, Farm Mortgages, New York Times, February 5, 1933.

19. Yearbook of Agriculture, 1932, p.492.

20. New York Times, November 22, 1932.

21. New York Times, January 16, 1928; George Soule, The Useful Art of Economics (1929), p.66.

22. W.T. Foster and Waddill Catchings, Profits (1925), p.150.

23. C.K. Hobson, The Export of Capital (1914), pp.66-67.

 


Last updated on 29.9.2007