Capital Intensification and Class in America
April 19, 2016
by William P. Meyers

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The Frustration of Immobility

When the Communist Manifesto by Karl Marx and Frederick Engels was published in 1848, the United States of America was just beginning to industrialize. Most Americans were farmers who owned their own land. Most African-Americans were slaves, and most worked on large cotton or tobacco plantations. The U.S. had just shifted from grabbing land from native tribes to grabbing it from other nations, having started a war with Mexico and taken most of what we now refer to as the West.

American Capital, in 1848, was still mainly in the form of land. The most notable industrial capital was in railroads, steamship companies, and cotton mills. Banks and the stock market were important, but were still in their infancy.

Mobility was available for those who strove for it, excepting slaves and Indians. Land was cheap if you wanted to try farming. A store could be started with very little capital, and a service business took almost no capital, just a willingness to serve. True, many people remained stuck in the class, or even the trade, they were born to, but that was because most people did not find that to be such a bad deal (again, excepting slaves).

During the Civil War a critical point of finance capital was reached. Suddenly railroads could be slung from coast to coast, and steel factories sprang up to make the steel that went to the rail and railcar factories. Coal was king, but soon petroleum was found to be plentiful and available and particularly good for the automobiles that began appearing around 1895.

The economy had periods of growth and even bubbles, recessions and even a Great Depression, but always the way forward was industrialization, increasing the amount of capital, and increasing the power of Wall Street and banks. The population shifted from mainly agricultural to mainly industrial.

Then came World War II. Franklin Delano Roosevelt had been trying to get us into it for years, but a coalition of peace-loving Democrats and Republicans kept us out until the Battle of Pearl Harbor. Before the end of World War II the Germans had destroyed the British, French and Russian factories. America destroyed Japan's factories, and Germany's factories were obliterated by Russia, Britain, and America.

As far as I can tell, not a single America factory was destroyed during World War II. Which is the real reason for the heyday of American prosperity from 1946 to about 1966. Not the Right/Republican fairy tale of life before environmental laws and Medicare. Not the Left/Democratic fairy tale of life with strong unions, good pay for workers, and high marginal tax rates. All those things happened, but they were secondary to the effects of U.S. industrial imperialism. They were effects, not causes.

In the 1970s the tide began to turn, but it was a complex rip tide that is important to understand if you want meaningful solutions. Other nations had been building new factories since 1947. Some, like China, had lower labor costs. Computers were coming into wider use, and robots (or just smarter factory machines) were increasing productivity. Advances in agriculture and medicine allowed the global human population to boom.

In the U.S. more women and African-Americans entered the work force and (to some extent) also began competing for more highly-paid work.

Throughout the world the supply of capital kept increasing. Those families that had capital had children with ever greater advantages over the children of have-nots. Degree inflation was firmly underway: jobs that had once required no schooling now required a high school diploma, those that had once been done by high school graduates now asked for college graduates. Even having a graduate degree no longer guaranteed work in your field. And large numbers of rich children from other countries started arriving at U.S. universities, willing to pay extra for the slots available, in particular crowding the underfunded out of graduate schools.

Despite these changes, it is still possible in these United States to "work" your way from near the bottom to near the top in a single generation. It is not uncommon for a child to do a bit better than her parents, particularly if the parents are lower middle class or upper working class and the clear goal is to become a professional in the upper middle class. But it is harder and harder, because more and more capital is required to make the leap.

But it is not just family capital, which enables some children to get through college debt free and even fail in a couple of business ventures (capitalized by Ma and Pa) before having a success. It is the vast amount of finance capital that can be thrown at promising business ventures, regardless of family connections. If ten young people with roughly similar skill levels have the same business idea, the one backed by the most capital almost always wins. Getting capital usually means already having connections, and those connections have the power to further your business. The capital also allow you to buy expertise and to not be killed by the inevitable missteps that occur in new businesses.

You can still start a clean-up, janitorial service business in the U.S. with little more than a mop and a willingness to work. Such businesses seldom pay more than minimum wage when expenses are accounted for. Competition is intense from immigrants both legal and illegal, as well as others out of work with no better idea or skill, for whatever reason.

Most new businesses require both skill and capital. "I have an idea" is not enough. Most new small businesses fail. Anecdotally, in my life I have met many people who were workers, saved up, started a business, and lost their savings. Almost everyone I know who stared a business and succeeded was from a middle (or higher) class family and had considerable financial support from the family. One person I knew always told reporters he started his business with just $5,000 from his family. But I knew he was getting $40,000 a year from his family for "living expenses," so that he did not have to take any money out of the business as it grew.

Economists say the middle class is shrinking, which means even more competition as children of the middle class try even harder to hold their slots, which necessarily means excluding new entrants from the working class. The capital of the middle class (which covers a broad range of income and wealth) is often barely enough to pay for college for children, who then need to work in other people's businesses to survive. The lucky ones will be doctor's, lawyers, accountants, engineers and corporate managers. Few will become business owners in any meaningful sense.

What is to be done? It may seem harsh, but limiting immigration would actually help. It is simple supply and demand. The less the supply of workers, the higher the wages that must be paid. That means it is easy for down-on-their-luck people to find work helping with cleaning, childcare, elder care and the like. That first rung in the economic ladder is the most important one, if you weren't born into a family that was already above it.

The other way to limit the supply of workers, so that wages would rise over time, would be to limit the supply of children. The best way to do this would be to implement a one-child policy. It need not be strict. We only need to give more people incentives to minimize the number of children they have.

Make work government programs can also be a part of the solution, particularly if the work is actually useful to society, and not just rearranging deck chairs for pay.

Capital will continue to accumulate, and a lot of it is accumulating outside the U.S. The capital per unit of population is the main factor in overall prosperity. To see that those at the bottom get a fairer share of economic output, and wealth, the crucial factor is keeping labor in short supply. Hence strict immigration laws and no incentives to have children.

When wages are higher workers will have more choices. If history is an indicator, most will simply spend the money. Some will feel more emboldened to try to start businesses, which is a good thing: some will fail, but some will succeed.The cost of failure will be lower because it will be easier to get a good paying job and recover from failure. And some will simply save and invest in existing businesses, mainly through the stock market (and that includes pension funds, which mainly get returns from the stock market). Building wealth in homes and stocks is the easiest way for large numbers of people to ensure a middle-class life style for themselves, along with the ability to help their children reach the same goal.

But that won't appeal to radicals, who will always call for an immediate radical redistribution of wealth. I've been one, and known a lot of them. They seldom save any money (unless they have a boss who forces them to save through a pension plan), because the revolution is always just around the corner.

It is easy to trace the history of the intensification of capital, if you are willing to make the effort. But I would note that further intensification of capital may result in trends that are unknown or even unknowable today. In particular intensification of capital tends to equate to ecological destruction, as do population growth and high levels of consumption.