Class Structure of Capitalism
The class system in America is a largely two-tiered structure that is based on a socio-economic power relationship in which, as we saw in the previous posting, the ownership and control of wealth plays a defining role. There are several distinguishing features of the American class system.
First, the two classes, while roughly correlating to income, are not based necessarily on income. Instead each class is largely based on the type of property owned and the degree of power welded by that ownership. Second, while there are, of course, circumstances where there’s been movement of individuals from one class to another the two classes are, for the most part, stable over the generations.
There’s an upper class that holds the reins of economic and political power through the ownership of marketable wealth (i.e. stocks, bonds, non-occupied real estate) and which therefore has a dominating power over society. This class can be sub-divided between the heavily propertied families that call the shots and the wealthy elite that manage those operations and implement the propertied family’s wishes. The upper class acquires its wealth largely through a combination of inheritance and the claim to the residual of production and management of the production process. This upper class largely segregates itself socially from the lower class by often sending their children to exclusive private schools, participating in exclusive social clubs, and appearing on social registers.
The other American socio-economic class is a lower class that lacks substantial ownership of marketable assets and survives largely on the upper class for wages. This lower class also can be sub-divided. There are three essential sub-groups to the lower class, though it is possible to sub-divide it even finer.
One major division of the lower class is the famed “middle class” that often owns some personal-use property, such as a house or a car. Most of the members of the middle class don’t own controlling marketable assets and, as a result, most do not have access to any substantial amount of the profits of the various firms or to the governance of those firms. The majority of their children attend public schools though some do attend private schools. Few middle class children attend the exclusive schools that the elite upper class sends their children to. Members of the middle class are likely to have some college, tend to work in white collar occupations, and often achieve mid to low level management jobs. The power of the middle class, while praised by pundits and politicians, is relatively limited in comparison to the power of the upper class.
Another division of the lower class is the “working poor.” This sub-group rarely owns property beyond possibly a car and usually rents their housing. The working poor rarely attends, much less completes, college and usually works until death in blue collar fields as low-level workers in which they occasionally rise to become managers. Needless to say the working poor have little power in the American system.
Finally, there’s the poorest of the poor, the “underclass’, who are often homeless and impoverished. Members of the underclass tend to work day jobs and are highly dependent upon charity and public assistance for their survival. The existence of this sub-class is nearly invisible to most of society and is certainly powerless in nearly all aspects.
This is the reality of the American capitalist class system. Some, especially conservatives, deny this reality. Others will acknowledge most aspects of it but complain that we’re instigating class warfare by bringing it up. To the former they’re simply hiding their heads in the sand. Those who accept it but refuse to address it are doing nothing more than telling us to ignore the man behind the curtain.
While it’s important that we understand the role of class there’s one last important piece of the puzzle to understanding capitalism, which is the unique role of the market in the capitalist socio-economic system.
Monday, February 1, 2010
Sunday, January 17, 2010
What is Capitalism? - Part 2
The Importance of Wealth to Power
When class is addressed in America it has historically been defined by income. The revered “middle class” is usually defined by an annual income ranges from $40,000 to $250,000. The next class, which starts at annual incomes above $250,000, belongs to what has historically been called the "upper class."
Breaking down the classes based solely on income doesn’t accurately reflect the true nature of the class system either in the types of classes or their origin. While there is a rough correlation between income and class centering on exclusively on income misses the true nature of the beast. This is because class is actually a characteristic of power relationships between groups of people. To understand these power relationships one needs to first understand how power is tied to wealth in America.
G William Domhoff (psychologist and author of "Who Rules America?") points out that one needs to start by understanding the meaning of the word "wealth." Economists have a specific definition. They define wealth as "marketable assets, such as real estate, stocks, and bond, leaving aside consumer durables like cars and household items." In addition to marketable assets economists use "financial wealth," which is a person’s net worth minus their net equity in owner-occupied housing.
According to research as of 2001 forty-four percent of all privately held stock, fifty-eight percent of financial securities, and approximately fifty-seven percent of business equity was owned by households in the top one percent of net worth. If one expands this to households with the top ten percent of net worth the percentage of ownership jumps to an enormous eighty-five to ninety percent of stocks, bonds, trust funds, and business equity.
If such wealth was earned largely through one’s own labor it might be excused. Domhoff shows otherwise. The Federal Reserve Bank of Cleveland published a study that indicated that only 1.6% of all Americans inherit $100,000 or more. Another 1.1% inherits between $50,000 and $100,000.
In addition, Domhoff has established through extensive research that there are a very small percentage of the American families who have a long stable history of dominating the American economic and governmental system. He’s documented how these small numbers of families have the controlling shares of stock in American commercial banks, investment banks, law firms, and corporations. By owning the majority of such stocks these families call the shots on the operations of the businesses. These families guide economic and political policies and dominate political institutions from the highest political office down to the local levels.
But the issue isn’t only the wealth but the connection between wealth and power. Domhoff defines power as "the ability (or call it capacity) to realize wishes, or reach goals, which amounts to the same thing, even in the face of opposition." He shows that wealth provides a resource that’s extremely useful in exercising power through political donations, paying off lobbyists, and money to think tanks. Another way wealth provides power is through the control of corporations, which exert extreme power in our society. A third wealth/ power connection is not only does wealth provide power but that same wealth-generated power can create a feedback loop by which it in turn generates additional wealth. This additional wealth can result not only from the reinvestment of proceeds such as dividends and interest, but also through sweetheart loans, quid pro quo deals, and well paying jobs upon leaving a public office.
Therefore, class should be defined not by the amount of income but by wealth and the power that it provides.
In the next post I’ll take this information and apply it to understanding the class system in capitalism.
To learn more about Domhoff's work visit his web site, "Who Rules America?"
When class is addressed in America it has historically been defined by income. The revered “middle class” is usually defined by an annual income ranges from $40,000 to $250,000. The next class, which starts at annual incomes above $250,000, belongs to what has historically been called the "upper class."
Breaking down the classes based solely on income doesn’t accurately reflect the true nature of the class system either in the types of classes or their origin. While there is a rough correlation between income and class centering on exclusively on income misses the true nature of the beast. This is because class is actually a characteristic of power relationships between groups of people. To understand these power relationships one needs to first understand how power is tied to wealth in America.
G William Domhoff (psychologist and author of "Who Rules America?") points out that one needs to start by understanding the meaning of the word "wealth." Economists have a specific definition. They define wealth as "marketable assets, such as real estate, stocks, and bond, leaving aside consumer durables like cars and household items." In addition to marketable assets economists use "financial wealth," which is a person’s net worth minus their net equity in owner-occupied housing.
According to research as of 2001 forty-four percent of all privately held stock, fifty-eight percent of financial securities, and approximately fifty-seven percent of business equity was owned by households in the top one percent of net worth. If one expands this to households with the top ten percent of net worth the percentage of ownership jumps to an enormous eighty-five to ninety percent of stocks, bonds, trust funds, and business equity.
If such wealth was earned largely through one’s own labor it might be excused. Domhoff shows otherwise. The Federal Reserve Bank of Cleveland published a study that indicated that only 1.6% of all Americans inherit $100,000 or more. Another 1.1% inherits between $50,000 and $100,000.
In addition, Domhoff has established through extensive research that there are a very small percentage of the American families who have a long stable history of dominating the American economic and governmental system. He’s documented how these small numbers of families have the controlling shares of stock in American commercial banks, investment banks, law firms, and corporations. By owning the majority of such stocks these families call the shots on the operations of the businesses. These families guide economic and political policies and dominate political institutions from the highest political office down to the local levels.
But the issue isn’t only the wealth but the connection between wealth and power. Domhoff defines power as "the ability (or call it capacity) to realize wishes, or reach goals, which amounts to the same thing, even in the face of opposition." He shows that wealth provides a resource that’s extremely useful in exercising power through political donations, paying off lobbyists, and money to think tanks. Another way wealth provides power is through the control of corporations, which exert extreme power in our society. A third wealth/ power connection is not only does wealth provide power but that same wealth-generated power can create a feedback loop by which it in turn generates additional wealth. This additional wealth can result not only from the reinvestment of proceeds such as dividends and interest, but also through sweetheart loans, quid pro quo deals, and well paying jobs upon leaving a public office.
Therefore, class should be defined not by the amount of income but by wealth and the power that it provides.
In the next post I’ll take this information and apply it to understanding the class system in capitalism.
To learn more about Domhoff's work visit his web site, "Who Rules America?"
Sunday, January 3, 2010
What is Capitalism? - Part 1
"Know thy self, know thy enemy. A thousand battles, a thousand victories." ~ Sun Tzu
This is part one of a series in which I try to break down capitalism into its essential elements.
In capitalism we find an economic system with three central components that work together to serve one goal, that is to increase for a small group of people that mysterious and elusive thing called “capital” by which capitalism gets its name. Therefore, it’s with the nature of capital that we begin.
Defining Capital
While many capitalists actually prefer the term “free market” or “free enterprise” rather than “capitalism” (Richard Sennett in his book “The Culture of the New Capitalism” credits Werner Sombart with coining the term “capitalism” though many credit Karl Marx) they inevitably pay homage to capital in their theories. But what is capital and why does it plan such a dominant role as to name a whole economic system after it?
The term capital is used today for nearly every aspect of production. We hear about “human capital”, “investment capital”, “intellectual capital”, and so forth. Even in the political process when President Bush declared that he had earned “political capital” after the 2004 election. But the application of these terms hides the true nature of capital.
Essentially capital is the private investment of money. While private investment is most commonly thought of as stock ownership it also includes speculative investment in commodities, real estate, and financial markets along with the ever growing types of new investment mechanisms. In capitalism the supplier of capital lays legal claim, if not factual, to any profit generated by the investment mechanism, which the supplier of capital may then choose to reinvest. It’s because of this claim by the capitalist to the profits generated that gives capital its self-reproducing characteristic.
By understanding capital as private investment of money we can therefore define a "capitalist" as one who through sufficient investment is able to comfortably live on the profits generated by their investment rather than fruits of their own labor. In addition to claiming the profits the capitalist also lays legal claim to the right to manage any business that he or she invests in. The greater the percentage of shares owned then the greater the capitalist’s claim to the right of management.
In the next installment I’ll address the connection between wealth and power.
This is part one of a series in which I try to break down capitalism into its essential elements.
In capitalism we find an economic system with three central components that work together to serve one goal, that is to increase for a small group of people that mysterious and elusive thing called “capital” by which capitalism gets its name. Therefore, it’s with the nature of capital that we begin.
Defining Capital
While many capitalists actually prefer the term “free market” or “free enterprise” rather than “capitalism” (Richard Sennett in his book “The Culture of the New Capitalism” credits Werner Sombart with coining the term “capitalism” though many credit Karl Marx) they inevitably pay homage to capital in their theories. But what is capital and why does it plan such a dominant role as to name a whole economic system after it?
The term capital is used today for nearly every aspect of production. We hear about “human capital”, “investment capital”, “intellectual capital”, and so forth. Even in the political process when President Bush declared that he had earned “political capital” after the 2004 election. But the application of these terms hides the true nature of capital.
Essentially capital is the private investment of money. While private investment is most commonly thought of as stock ownership it also includes speculative investment in commodities, real estate, and financial markets along with the ever growing types of new investment mechanisms. In capitalism the supplier of capital lays legal claim, if not factual, to any profit generated by the investment mechanism, which the supplier of capital may then choose to reinvest. It’s because of this claim by the capitalist to the profits generated that gives capital its self-reproducing characteristic.
By understanding capital as private investment of money we can therefore define a "capitalist" as one who through sufficient investment is able to comfortably live on the profits generated by their investment rather than fruits of their own labor. In addition to claiming the profits the capitalist also lays legal claim to the right to manage any business that he or she invests in. The greater the percentage of shares owned then the greater the capitalist’s claim to the right of management.
In the next installment I’ll address the connection between wealth and power.
Sunday, December 20, 2009
52
Senate Democrats Friday reported that they finally have the 60 votes needed to pass health care legislation. But is it really health care reform? Does the Senate bill really put the fear of God in the health care industry? The simple answer is no.
We can debate this aspect or that aspect of the bill but an important indicator is to see who likes it. On Meet the Press today (12/20/09) both Vermont Governor Howard Dean and Joe Scarborough, a previous Congressman and currently the morning host on MSNBC, pointed out that "insurance companies' stocks reached a 52-year high on Friday after this so called reform bill got its 60th vote."
The actions of the shareholders tell us all that we really need to know about the Senate bill. Scarborough described it well when he said on the same show concerning President Obama, "He has made a lot of people with insurance stock a lot richer."
The Senate bill doesn’t reform the health industry but instead uses the power of the State to support the shareholders of the insurance corporations. In other words, it’s business as usual in Washington, D.C.
We can debate this aspect or that aspect of the bill but an important indicator is to see who likes it. On Meet the Press today (12/20/09) both Vermont Governor Howard Dean and Joe Scarborough, a previous Congressman and currently the morning host on MSNBC, pointed out that "insurance companies' stocks reached a 52-year high on Friday after this so called reform bill got its 60th vote."
The actions of the shareholders tell us all that we really need to know about the Senate bill. Scarborough described it well when he said on the same show concerning President Obama, "He has made a lot of people with insurance stock a lot richer."
The Senate bill doesn’t reform the health industry but instead uses the power of the State to support the shareholders of the insurance corporations. In other words, it’s business as usual in Washington, D.C.
Sunday, December 6, 2009
Vanity
"The offspring of riches: Pride, vanity, ostentation, arrogance, tyranny" ~ Mark Twain
On November 27th, 2009 the Los Angeles Times ran an excellent Op-Ed piece by Steve Salerno titled, “Can America afford the 'vanity tax'?” Salerno wrote about how he had a found a pendant for the price of $1,195 at a jewelry store in a shopping center and then a very similar one at Wal-Mart for just $39. While he never explains what the hell was he was doing at Wal-Mart in the article he does a very good job of exploring something he calls the “vanity tax.”
According to Salerno a “vanity tax” is “the difference between what a thing needs to cost (to fulfill a given function) and what it ends up costing (after being artificially inflated by imperatives besides function).” This vanity tax isn’t simply an extra cost tacked on for a better product. In fact, the more expensive item is often worse than the less costly. As he states in his article, “It costs more to own a shoe that does a worse job of doing what a shoe is supposed to do.”
While it’s a great article it fails to explain why this “bastardization of value” exists. To understand this phenomenon one needs to understand the role the market plays in modern capitalism.
As I’ve explained previously the market for goods and services was the world’s first market, appearing shortly after the advent of agriculture. And it’s through this market today that we acquire everything from food to cars to yachts. In fact it’s nearly impossible to survive in modern Western society without buying goods or services from the market. But in modern capitalism the market does much more. Rather than simply providing a mechanism to delivers goods and services or the Darwinian effect of Adam Smith’s “invisible hand,” the retail market in a modern capitalist system functions, in conjunction with other markets, as a mechanism to distribute wealth to the capitalist class, often in the form of dividends from profits or increased value of stock.
With this knowledge we can see the origin of the vanity tax. The modern capitalist system creates a false need in consumers to purchase items with artificially inflated prices, a “vanity tax” as Salerno calls it, which thereby increases the amount of wealth distributed to the capitalists via the markets.
On November 27th, 2009 the Los Angeles Times ran an excellent Op-Ed piece by Steve Salerno titled, “Can America afford the 'vanity tax'?” Salerno wrote about how he had a found a pendant for the price of $1,195 at a jewelry store in a shopping center and then a very similar one at Wal-Mart for just $39. While he never explains what the hell was he was doing at Wal-Mart in the article he does a very good job of exploring something he calls the “vanity tax.”
According to Salerno a “vanity tax” is “the difference between what a thing needs to cost (to fulfill a given function) and what it ends up costing (after being artificially inflated by imperatives besides function).” This vanity tax isn’t simply an extra cost tacked on for a better product. In fact, the more expensive item is often worse than the less costly. As he states in his article, “It costs more to own a shoe that does a worse job of doing what a shoe is supposed to do.”
While it’s a great article it fails to explain why this “bastardization of value” exists. To understand this phenomenon one needs to understand the role the market plays in modern capitalism.
As I’ve explained previously the market for goods and services was the world’s first market, appearing shortly after the advent of agriculture. And it’s through this market today that we acquire everything from food to cars to yachts. In fact it’s nearly impossible to survive in modern Western society without buying goods or services from the market. But in modern capitalism the market does much more. Rather than simply providing a mechanism to delivers goods and services or the Darwinian effect of Adam Smith’s “invisible hand,” the retail market in a modern capitalist system functions, in conjunction with other markets, as a mechanism to distribute wealth to the capitalist class, often in the form of dividends from profits or increased value of stock.
With this knowledge we can see the origin of the vanity tax. The modern capitalist system creates a false need in consumers to purchase items with artificially inflated prices, a “vanity tax” as Salerno calls it, which thereby increases the amount of wealth distributed to the capitalists via the markets.
Sunday, November 22, 2009
Main Street v. Wall Street
The November 9th, 2009 issue of Time magazine had an interesting cover which read, “Why Main Street Hates Wall Street.” While there were several interesting articles and commentaries in that issue it’s the cover article that I want to write about.
Before discussing the article though I would like to comment briefly about the cover. The term “hate” really bothers me. In my opinion, we should be angry, frustrated and disgusted with Wall Street. But I would discourage “hating.” When we hate then far too often we forget that the target of our hatred is often times a human being, who then becomes ‘The Other.’ As a result we may begin down a path that ultimately ends in violence. Let us be angry but let us not hate.
Now, back to the subject at hand, the Time magazine article written by Allan Sloan which is actually titled “What’s Still Wrong with Wall Street.” There’s a lot of good that can be said about the article. It starts out with a very good analysis of what led up to the crash, such as the actions of AIG and Citibank. It then dives into the post-crash events in which these fat cats were bailed out by the feds. Sloan also centers his fire on those same execs that won’t have to face justice for swindling so many people and destroying so many lives. The article wraps up with some recommendations on fixing the system.
I have only two real criticisms of the article but I think these are important. My first critique is that it fails to point the blame where it belongs, which is the capitalist system itself. Instead, the article states that the failure was not enough regulations on the financial industry. This mistaken assumption leads to the second criticism, which is that the recommended solutions consist of simply more regulation and a warning not to blindly trust Wall Street.
Progressives need to drop these constant calls to save capitalism. These repeated statements that capitalism can be saved are starting to resemble the plot from “Weekend at Bernie’s.” Let’s just go ahead and acknowledge the demise of capitalism so that we can move on to a better system.
Before discussing the article though I would like to comment briefly about the cover. The term “hate” really bothers me. In my opinion, we should be angry, frustrated and disgusted with Wall Street. But I would discourage “hating.” When we hate then far too often we forget that the target of our hatred is often times a human being, who then becomes ‘The Other.’ As a result we may begin down a path that ultimately ends in violence. Let us be angry but let us not hate.
Now, back to the subject at hand, the Time magazine article written by Allan Sloan which is actually titled “What’s Still Wrong with Wall Street.” There’s a lot of good that can be said about the article. It starts out with a very good analysis of what led up to the crash, such as the actions of AIG and Citibank. It then dives into the post-crash events in which these fat cats were bailed out by the feds. Sloan also centers his fire on those same execs that won’t have to face justice for swindling so many people and destroying so many lives. The article wraps up with some recommendations on fixing the system.
I have only two real criticisms of the article but I think these are important. My first critique is that it fails to point the blame where it belongs, which is the capitalist system itself. Instead, the article states that the failure was not enough regulations on the financial industry. This mistaken assumption leads to the second criticism, which is that the recommended solutions consist of simply more regulation and a warning not to blindly trust Wall Street.
Progressives need to drop these constant calls to save capitalism. These repeated statements that capitalism can be saved are starting to resemble the plot from “Weekend at Bernie’s.” Let’s just go ahead and acknowledge the demise of capitalism so that we can move on to a better system.
Sunday, November 8, 2009
Moneytheism
"No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money.” - Jesus of Nazareth
If you listen to capitalists and their apologists they claim to be the voice of reason while, according to them, those of us on the Left run on passion. But actually it’s the capitalists, especially the current breed who’s been in vogue for the last few decades, who are the ones running on faith.
In his most recent book, No Rising Tide, Joerg Rieger explains that there are several tenants to this bizarre capitalist religion and they are built on blind faith. No amount of rational proof will sway the capitalist from these tenants. According to Rieger those tenants are:
• Economic deregulation always promotes growth,
• Tax cuts for powerful corporations and the wealthy always spur the economy,
• Wealth gathered at the top inevitably trickles down, and
• A rising tide will lift all boats.
The comedian Stephen Colbert hit the nail on the head when he coined the term “Moneytheism” to describe this twisted religion. One must wonder how much longer before people finally wake up and realize that they’ve been duped by false prophets all of this time?
I’ve been lucky to have heard Joerg Rieger speak on several occasions and I highly recommend his new book, No Rising Tide.
If you listen to capitalists and their apologists they claim to be the voice of reason while, according to them, those of us on the Left run on passion. But actually it’s the capitalists, especially the current breed who’s been in vogue for the last few decades, who are the ones running on faith.
In his most recent book, No Rising Tide, Joerg Rieger explains that there are several tenants to this bizarre capitalist religion and they are built on blind faith. No amount of rational proof will sway the capitalist from these tenants. According to Rieger those tenants are:
• Economic deregulation always promotes growth,
• Tax cuts for powerful corporations and the wealthy always spur the economy,
• Wealth gathered at the top inevitably trickles down, and
• A rising tide will lift all boats.
The comedian Stephen Colbert hit the nail on the head when he coined the term “Moneytheism” to describe this twisted religion. One must wonder how much longer before people finally wake up and realize that they’ve been duped by false prophets all of this time?
I’ve been lucky to have heard Joerg Rieger speak on several occasions and I highly recommend his new book, No Rising Tide.
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