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International Socialism, Summer 1961

Dick Logan and Henry Paley

‘People’s Capitalism’?

From International Socialism (1st series), No.5, Summer 1961, pp.24-27.
Thanks to Ted Crawford & the late Will Fancy.
Transcribed & marked up by Einde O’Callaghan for ETOL.

The art of using cute phrases to camouflage fact has spread from salesmanship to politics and economics. Communist propagandists crow about “people’s democracy” in lands where the people have no democracy. In this country business pitchmen brag about “people’s capitalism” despite figures showing little if any control of capital by the American people.

Scarcity of criticism directed at the Communist myth-makers is understandable behind the Iron Curtain. Who wants a one-way ticket to a Siberian salt mine? But it is shocking to find a dearth of factual analysis in America to check the rapidly spreading fable that claims a silent income revolution already accomplished in this country. Rather than criticism, this claim has been met with a chorus of agreement.

From supposedly responsible financial columnists like Sylvia Porter we learn that America has undergone “the greatest bloodless income revolution in world history” [1] ... “a financial upheaval that rivals anything ever promised by Lenin.” [2] The Du Pont Co. publishes a slick 33-page essay which purports to describe the “quiet revolution” in America ... “from a society stratified into rich and poor, educated and illiterate, privileged and subjugated has come a society recognizing no fixed class structure, offering its members, according to their talents and desires, opportunities to make of themselves what they will.” [3]

A respected liberal economist, John Galbraith of Harvard, writes a volume about “The Affluent Society,” and it promptly hits the best seller list. In it he tells us our current challenge is not the abolition of poverty, but how to contend with affluence.

Standard Oil reports, “Yes, the people own the tools of production ... By his own definition, Karl Marx’s prophecy has been realised ... How odd to find that here, in the capitalism he reviled, that the promise of the tools has been fulfilled.” [4]

It would almost appear cruel to introduce a blast of cold fact to disturb such cosy and glib unanimity. While it is certainly less strenuous to have economic ideology shaped by slogans, the surest path to economic truth still lies up the rugged slope of statistics. Using the figures, let’s analyze the basic claims that:

1. distribution of income has passed through a revolution in the US and
    
2. as a consequence of widespread stock ownership, the people now own the tools of production.

The first claim is frequently bolstered with references to the introduction of graduated federal income taxes and New Deal social reforms. Occasionally one of the premature heralds of the age of affluence will give nodding recognition tc trade unions as a factor in the income revolution which is supposed to have drained the swamps of poverty while levelling mountains of concentrated capital. Much as some in the union movement may wish! to take credit for participation in such a quietly successful revolt (in which there are no bad guys and everyone wins), the cruel facts show otherwise.

Certainly the growth of unionism and many of the social reforms accompanying that development have helped to raise the living standards of millions of American families. At the same time, however, expanded production has meant the total economic pie in the US has been vastly enlarged. If we look at the relative position of those families we see they are essentially in the same place they were before anyone started mouthing off about income revolutions. A valid conclusion is that union bargaining and legislative reforms were needed to keep those families from slipping backward on the relative income scale. Look at Table 1. It shows distribution of before-tax income in the US for selected years from 1910 to 1957. The population is divided into fifths of equal size. Despite the statistical problem of comparing figures from different studies, Table 1 shows remarkable stability in the apportionment of US income in this century. Notice that the top fifth consistently took almost half the income pie while the lowest fifth generally received about five percent. The last column on the right, indicates what has happened inside the top of the top fifth. From those figures available, it shows that the top twentieth of the population has regularly grabbed from one-fifth to one-fourth of the entire pie. Admittedly, the picture outlined in Table 1 is not completely accurate. The bias, however, is on the side of understanding inequality in income distribution. In Table 1 expenses and capital gains are simply not reported as income ; and by far the overwhelming share of this money goes to the very top brackets.

Now let’s look at the figures to see whether (as some claim) the federal income tax has corrected the lopsided distribution picture we just reviewed.

Table 2 shows distribution of income (again by fifths of the family population) before and after US personal income taxes for the years 1950-1956. Unfortunately, earlier figures are not available.

A fascinating fact which emerges from Table 2 is that the federal personal income tax does not alter the imbalance in shares of income. There is practically no difference in the “before” and “after” tax percentages. As a result, the picture is no less lopsided than it was in Table 1. Much greater net income inequity could be demonstrated if the statistics of total tax impact were made available. Consider the fact that the only tax reflected in Table 2 is the relatively progressive federal income levy. Most state and local taxes are regressive. In 1958, for example, sales taxes comprised 58.6 percent of all state revenues. [5] Deducting all taxes from family income would doubtless show the lowest fifths with lesser shares of income.

Another of the myths being circulated by the touters of people’s capitalism follows the line that the US has been able to abolish poverty amidst plenty. What do the figures show on this one?

If we use constant 1957 dollars as a measure (to eliminate the inflation factor) we find that there were about 8,000,000 families in 1947 who received before income tax incomes of $2,000 or less. While the economy boomed in the decade that followed, the figures for 1957 show there were still 7,300,000 families in that same lowest income bracket. [6] It is likely that even that small drop in the $2,000-or-less bracket was restored by the recession of last year ... apparently, there are still extremes of poverty in this “affluent” society.

”Poverty,” of course, is subject to varying definitions. It might be argued that a good definition would describe the situation where family income does not meet the cost of a modest but adequate standard of living. Even if a family falling within this category is not termed “poor,” it could safely be labeled “non-affluent.”

The phrase “modest but adequate” comes from the US Labor Department which, on the basis of living costs and current consumer prices, estimates the income necessary for a family to maintain that standard of living. A look at the figures shows us that approximately half of the families In the USA. had incomes below what the government estimated as necessary for a “modest but adequate’ living standard. [7]

While this figure includes tenant farmers and sharecroppers who received some of their incomes from crops, it still shows that Roosevelt’s description of a “third of a nation ... ill housed, ill clothed and ill fed” is about as valid today as it was in New Deal Days.

Now let’s look at the second claim of the “people’s capitalism” hucksters, the claim that the tools of production are owned by the people. To prove this point, it would have to be shown that there is widespread ownership of stock plus a fairly equal distribution of that stock do that no relatively small number of stock-holders could dominate all or part of American industry.

First, how widespread is stock ownership? In table 3 (above) it shows the number of American stock-holders and their proportion to the total population. At no point do the figures show as much as 9% of the total population owning stock.

What if there isn’t widespread ownership, perhaps those owning stock are equally scattered throughout the income segments of the population? Let’s look at other figures that give the answer.

Table 4 breaks down the stock-holders in the US by income and occupation. Amongst the vast majority of Americans, those with incomes of less than $7,500, the incidence of stock ownership ranges from a high of one in every 16 to a low of one in every 40.

Stock ownership among production workers ranges from 2.7% to 6.8%. Even amongst most white collar workers, those in the “clerical and sales” category, less than one in seven own stock.

Rather than being widespread, the figures of the NY Stock Exchange demonstrate that stock ownership is the exception rather than the rule among working people. Tables 3 and 4 classify a person as a stockowner whether he owns one or a million shares of stock. Let’s look at the concentration of actual ownership (who owns how much) and see if it upholds the claims of those who say the mills and factories of America are now owned by the people. Unfortunately figures are not available for all periods. However, during the decade from 1927-1937, less than one-half of one percent of Americans received 50% of all cash dividends. [8] It stands to reason, that half of the stock was owned directly or indirectly by that tiny minority of the population. In 1952 less than one percent of all American families owned over four-fifths of all publicly-held stocks owned by individuals. [9]

An almost fantastic concentration of stock ownership is vested at the pinnacle of American wealth. In 1937, for example, one-fiftieth of one percent (10,000 people) of income receivers owned directly or indirectly 25% of all stock. [10] By 1949 the combined stock holdings of one-tenth of one percent of US families (50,000) accounted for between 65% and 71 % of the total marketable stock outstanding. The same year (1949) about half of the five million stockholders in the country held combined holdings of only one percent of the total. [11]

In the years 1937-1939 (the last period when such figures were made available), the twenty largest known stockholders of the 200 largest non-financial corporations owned 31.6% of the common stock and 30.4% of the preferred stock. [12] According to economist Paul Samuelson, “The largest single minority ownership groups typically hold only about a fifth of all voting stock. Such a small fraction has been deemed more than enough to maintain ‘working control’.” [13] A true appraisal of the so-called “capitalist revolution” requires a look into the distribution of wealth as well as income in America. This is particularly true today when the tax laws act as an incentive for corporations to increase their undistributed profits (another phase for corporation savings) as against the dividends paid out.

Whereas paid-out dividends appear in our income figures, undistributed profits and consequent capital gains (taxed at a lower rate of 25%) do not; the latter can only be dug out by studying wealth distributions.

Unfortunately, Congress does not now make investigations of wealth as it used to. There is a scarcity of complete data. However, we can analyze older statistics on wealth plus more recent figures of liquid assets and savings. Wealth statistics are available for 1922-1936. Average figures for those years showed half of the total wealth in this country owned by less than ten percent of the people ... perhaps as few as five percent. At the other extreme, two-thirds (67%) of the people, going op from the bottom of the economic scale, had only about one-fifth (20%) of the wealth. [14]

Distribution of liquid assets in the US is another revealing array of figures. Table 5, covering the five-year period (latest available) from 1946 to 1950, shows that the top fifth held roughly half all liquid assets. This actually understates the inequality when we consider that poor families have almost all of their assets liquid while the rich and very rich have most of their assets in non-liquid stocks. [15]

Distribution of savings is in some respects more significant than distribution of income. It is through individual and corporation savings that capital wealth is accumulated. The wealthy spend only a small amount of their income while workers spend more than they earn.

Table 6 compares the savings status of the majority of the American population with the status of the top tenth for the years 1929-1949. It shows that, with the exception of 1946 when they broke even, the lowest three-fifths of American families, as a group, went into debt. In contrast, the top tenth did the lion’s (or squirrel’s) share of all savings. In 1949 the top tenth’s share of savings was over 100% ... this meant that the other 90% of the population, as a group, used up savings or went into debt.

The top one percent of income earners, it is estimated, receives between 50% and 55% of all savings when corporate savings (undistributed profits) are combined with individual savings. In the postwar years it has been undistributed profits rather than individual savings which have been the main source of investment funds. [16]

Two years ago Fortune magazine [17] did a survey of the summit of American wealth ... not just millionaires but those with fortunes of $50 million or more. Unlike the dinosaur, Fortune found the multi-multi-millionaire species is far from extinct; to the contrary, they were reported on the increase. In 1957 Fortune was able to identify 155 Americans in the $50 million or higher bracket despite estimates elsewhere as high of 500 fifty-millionaires for that year.

It is this group, at the summit of great wealth, which continues to make most of the bask economic decisions for America’s industry. The dominant families are still the Mellons, DuPonts, Rockefellers and the like. The DuPont family holdings alone are estimated in excess off $4 billion. Rockefeller family holdings in a single corporation, Standard Oil of New Jersey, are twice the market value of all stock owned by all American wage earners. Here’s a cogent comparison pointing up the actual status of the “income revolution” in the US –

• poor Woolworth heiress Barbara Hutton can spend only $200,000 on her fall wardrobe this year [18];
   
• 5.6 million workers would be eligible to receive pay increases (presumably to squander on high living) if the federal minimum wage law is raised to $1.25 and extended to groups of workers as proposed in the Roosevelt-Morse-Kennedy bill during the last session of Congress.
   

Conclusion

These are the salient facts of US income and wealth distribution. They paint a not very pleasant picture for the great mass of American families ... certainly it is no portrait of any revolution in income. Much as we’d like to see it, the “capitalist revolution” ... like the king’s cloak in the fairy tale ... just ain’t.

Who is responsible? Who is to be condemned? Not all the blame should be placed upon the man of wealth who successfully manipulated politicians and propaganda to protect and expand his fortune. The millionaire who joins with his wealthy colleagues in shaping laws to shift his tax burden, protect his monopoly or harass trade unions is merely indulging in his democratic right to be politically active in his own best interests.

The important difference between that millionaire and those who are even more responsible for the lopsided income and wealth situation is that the former is able to identify his own best interests.

Compare the degree of political participation of the richest millionaires listed in Fortune (not just donations which is relatively painless for them) with any comparable number of working people selected at random anywhere in the country. Which group would rate highest? It is the politically apathetic union member ... the guy or gal who can’t get around to registering, or voting, or finding out what the issues are, or joining a political party, or giving a buck to COPE ... in this group you’ll find the answer to why there is so great an imbalance in wealth and income. Looking for someone else responsible? Seek out the barstool capitalist and the barbershop stock expert ... the characters who are always ready to offer free advice on how to make a million ... but who lacks the guts or will (or both) to engage in the really free enterprise venture of joining with fellow workers in the ranks of a union so that they can deal as equals with their employers.

The complacent prefer to believe the slogans of hucksters. We wish we could too. Unfortunately, the millions of American families living in sub-marginal or marginal levels of income will not be delivered into affluence by the advertising copywriters or the overly optimistic reasoning of well intentioned professors who are insulated from reality.

Footnotes

1. The Birmingham News, March 18, 1958.

2. New York Post, March 6, 1952.

3. The Story of Man and his Work, E.I. Du Pont Nemours & Co., 1959, page 1.

4. The Story of Creative Capital, Esso Corp., undated.

5. Labor’s Economic Review, AFL-CIO, February 1959.

6. Survey of Current Business, US Dept. of Commerce, April 1958, page 13.

7. Figures adjusted for size of family; budget estimates based [on] Bureau of Labor Statistics estimates brought up to 1957 with Consumers’ Price Index ; figures for distribution of families by income from Current Population Reports, December 1958, US Bureau of the Census.

8. US Temporary National Economic Committee, Monograph No.29, pages 13, 18.

9. Senate Committee on Banking and Currency, Factors Affecting the Stock Market, 1955, 90.

10. US Temporary National Economic Committee, op. cit., page 13.

11. J. Butters, L. Thompson and L. Bellinger, Effects of Taxation, Investments by Individuals, 1953, page 382.

12. US Temporary National Economic Committee, op. cit., pages 601-602.

13. Paul Samuelson, Economics, 3rd edition, 1955, page 89.

14. National Bureau of Economic Research, Conference on Research in Income and Wealth by Charles Stewart, Vol.III, 1939, pages 113-120.

15. Federal Reserve Board, 1957 Survey of Consumer Finances, page 897.

16. V. Perlo, The Income Revolution, 1954, page 58.

17. Fortune, November 1957, page 176.

18. New York Post, August 6, 1959.

 
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