THE RICH GET RICHER AND THE POOR GET RICHER

… in proportion as the use of machinery and division of labor increases, in the same proportion the burden of toil also increases, whether by prolongation of the working hours, by increase of the work exacted in a given time, or by increased speed of the machinery, etc.

The lower strata of the middle class … all these sink gradually into the proletariat … as machinery . . . nearly everywhere reduces wages to the same low level. The modern laborer, on the contrary, instead of rising with the progress of industry, sinks deeper and deeper below the conditions of existence of his own class.


MARX AND ENGELS, THE COMMUNIST MANIFESTO

Much of the opposition to institutions of private property comes from popular beliefs about the effects such institutions have had in the past, beliefs largely unsupported by historical evidence. Marx was scientist enough to make predictions about the future that could be proved or disproved. Unfortunately, Marxists continue to believe his theory long after his predictions have been proved false.

One of Marx’s predictions was that the rich would get richer and the poor poorer, with the middle class gradually being wiped out and the laboring class becoming impoverished. In historical capitalist societies the trend has been almost the exact reverse. The poor have gotten richer. The middle class has expanded enormously and now includes many people whose professions would once have classified them for membership in the laboring classes. In absolute terms, the rich have also gotten richer, but the gap between rich and poor seems, so far as very imperfect statistics make it possible to judge, to have been slowly closing.

Many modern liberals argue that Marx’s predictions were accurate enough for laissez-faire capitalism but that such liberal institutions as strong labor unions, minimum wage laws, and progressive income taxes prevented them from being realized.

A statement about what might have happened is difficult to refute. We can note that both the rise in the general standard of living and the decreasing inequality appear to have been occurring fairly steadily, over a long period of time, in a variety of different more or less capitalist societies. The progressive part of the progressive income tax collects relatively little income (see Appendix III) and has almost no effect on the accumulation of wealth by means of capital gains. The main effect of the minimum wage law seems to be that unskilled workers, who frequently are not worth the minimum wage to any employer, are deprived of their jobs. (This effect is seen in the dramatic rise in the unemployment rate of nonwhite teenagers which consistently follows rises in the minimum wage.) In the previous chapter I argued that liberal measures tend to injure the poor, not benefit them, and to increase, not decrease, inequality. If that has been true in the past, then the increasing equality we have experienced is in spite of, not because of, such measures.

Another version of the same argument is the claim that the great depression was the true expression of laissez faire capitalism and that we were rescued from it by the abandonment of laissez faire in favor of Keynesian policies. The controversy here runs into, not merely a book, but an extensive literature; for some decades it was a central issue of debate among economists. Those who would like to see the anti-Keynesian side will find one variant of it in The Great Contraction by Friedman and Schwartz. The authors argue that the great depression was caused not by laissez faire but by government intervention in the banking industry and that without such intervention it would not have occurred.

Few people believe that capitalism leads inexorably to the impoverishment of the masses; the evidence against that thesis is too overwhelming. But relative inequality is a much harder matter to judge, and many people believe that capitalism, left to itself, produces an increasing inequality of income. Why? Their argument, in essence, is that the rich capitalist invests his money and thus makes more money. His children inherit the money and continue the process. Capitalists get richer and richer. They must somehow be getting their high income from the workers, who really produce the goods the rich man consumes and must therefore be getting poorer. This argument seemingly implies that the workers get absolutely poorer, but those who make the argument tend to assume that economic progress is making everyone richer, so the impoverishment is only relative.

The assertion that the capitalist gets his increased income at the expense of the workers ignores the fact that capital is itself productive, a subject I discuss at greater length in chapter 8. The increased productivity resulting from capital accumulation is one of the reasons for general economic progress.

Even if the capitalist invests all the income from his capital and consumes none of it, his wealth will only grow at the rate of return on capital — the interest rate his money can earn. If the interest rate is less than the rate at which the total wages of workers increase, the relative wealth of the capitalists will decline. Historically, the rate of increase in total wages has run about 5 to 10 percent a year, roughly comparable to the interest rate earned by capital. Furthermore, capitalists consume part of their income; if they did not, there would be little point in being a capitalist. The share of the national income going to capital in this country has varied over time but not consistently increased, as shown in Appendix III.

Of course, a truly successful capitalist earns much more than the ordinary interest rate on his capital — that is how he accumulates a fortune. And, having been born to a much lower income, he may find himself unable to consume a substantial fraction of what he makes. But his children are a different story; they have no special talent for earning wealth but a lot of practice in spending it. As have their children. The Rockefellers are a prominent example of the decline of a great family. Its founder, John D. Rockefeller, was an able businessman. His children were philanthropists. Their children are politicians. The purchase of the governorship of two states has not exhausted the fortune built up by the old man, but it must have at least slowed its growth.

Marx not only predicted increasing ruin for the working classes, he also asserted that that ruin was already occurring. Like many of his contemporaries, he believed that the spread of capitalist institutions and industrial methods of production had, by the early nineteenth century, caused widespread misery. This belief is still common. It is based on questionable history and far more questionable logic.

Many people, reading of the long work days and low salaries of nineteenth-century England and America, consider the case against capitalism and industrialism already proven. They forget that those conditions seem intolerable to us only because we live in an enormously richer society and that our society became so productive largely through economic progress made during the nineteenth century under institutions of relatively unrestrained laissez-faire capitalism.

Under the economic conditions of the nineteenth century, no institutions, socialist, capitalist, or anarcho-capitalist, could have instantly produced what we would regard as a decent standard of living. The wealth simply was not there. If a socialist had confiscated the income of all the capitalist millionaires and given it to the workers, he would have found the workers little better off than before. The millionaires made far more than the workers, but there were many more workers than millionaires. It required a long period of progress to produce a society rich enough to regard the conditions of the nineteenth century as miserable poverty.

More thoughtful people charge that conditions during the Industrial Revolution, especially in England, should be condemned not in contrast to our present standard of living but in contrast to earlier conditions. This was the belief of many English writers of the time. Unfortunately, few of them knew much about English life of the previous century; their attitude can be gathered from Engels’ euphoric description of the eighteenth-century English working class.

They did not need to overwork; they did no more than they chose to do, and yet earned what they needed. They had leisure for healthful work in garden or field, work which, in itself, was recreation for them … they were ‘respectable’ people, good husbands and fathers, led moral lives because they had no temptation to be immoral, there being no groggeries or low houses in their vicinity, and because the host, at whose inn they now and then quenched their thirst, was also a respectable man, usually a large tenant farmer who took pride in his good order, good beer, and early hours. They had their children the whole day at home and brought them up in obedience and the fear of God … . The young people grew up in idyllic simplicity and intimacy with their playmates until they married.

The historical evidence, although imperfect, seems to indicate that during the nineteenth century the condition of the working classes was improving: the death rate fell; the savings of workers increased; consumption by workers of such luxuries as tea and sugar increased; hours of labor fell. Those interested in a lengthier discussion of this evidence may wish to read The Industrial Revolution by T. S. Ashton, or Capitalism and the Historians, edited by F. A. Hayek.

While the Industrial Revolution was actually occurring, much of the opposition to it came from the conservative landed gentry, who objected that luxuries and independence were corrupting the working classes. It is a curious irony that time has made those gentlemen the intellectual allies — often the directly quoted authorities — of modern liberals and socialists who assail nineteenth-century capitalism for rather different reasons. The modern liberal will claim that it was state legislation, limiting hours, preventing child labor, imposing safety regulations, and otherwise violating the principle of laissez faire, that brought progress. But the evidence indicates that the legislation consistently followed progress rather than preceding it. It was only when most workers were already down to a ten-hour day that it became politically possible to legislate one.