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Harry Frankel

Does America Disprove Marx?

Income Trends: Fact and Fiction

(March 1952)

From Fourth International, Vol.13,No.2, March-April 1952, pp.42-46.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.
Proofread by Chris Clayton (July 2006).

The immanent tendency of the capitalist mode of production is towards an ever more unequal distribution of incomes and wealth. This law of capitalism, discovered and elucidated by Karl Marx, has been repeatedly proven by empirical data.

Bourgeois economists, the “hired prizefighters” of capital, as Marx called them, have made this Marxist discovery the target of vain attacks for over a century. They intensify their offensive in times of “boom,” when they feel that the transient flush of prosperity gives more plausibility to their arguments. It is not surprising therefore, that the present period, which is characterized by a war-boom economy and the most virulent anti-Marxist campaign of all history, should see the hired prizefighters flexing their muscles and cleaving the air with mighty swings as they try to deliver the KO blow to Karl Marx.
 

The NY Times Claims a “Social Revolution”

On March 5, the NY Times published a full page “report” on income distribution, which tries to prove, by the most specious calculations, that a “shift in income distribution” amounting to a “social revolution” has taken place in the United States “in the last four decades, and particularly since the Thirties.” The article is a report, made up by Times writer Will Lissner from a summary, prepared by Dr. Geoffrey H. Moore, of an analysis by Dr. Simon Kuznets, famed income analyst of the University of Pennsylvania. Thus the results reach us third hand. Further, most of the figures are stripped away, and rough “charts” and “graphs” are in most cases put in place of figures. Finally, the report does not give all the figures, but only a certain selection. It is well known that figures, if selected and juggled long enough, can be made to yield any desired result.

The Times report is obviously fallacious on a number of points. However, many of the vague claims in the report will not be susceptible of direct analysis until the figures on which they are based are published. A picture of income distribution in the U.S. over the last forty years, with emphasis upon the period since the Thirties, can however be presented on the basis of the figures now available to the public. Nothing in Dr. Kuznets’ forthcoming material can decisively alter this picture.
 

Are the Poor Still With Us?

The Times article begins with the claim that “the poor have become better off.” The manner in which this statement is “proved” has been analyzed in an article in the March 17 issue of The Militant as follows:

“... the report claims that ‘the very poor have become fewer by two-thirds of their 1939 number.’ To prove this, it offers the following fact: that in 1939, slightly more than 40% of the family income units got under $1,000 in income, while in 1949, only a little more than 10% were under this same $1,000 a year ceiling. This approach ignores facts which change the picture entirely:

“1. 1939 was a year of extreme depression with at least 9 million unemployed, while 1949 was a boom year. Thus such a comparison is obviously unsuited to determine a long term trend.

“2. This comparison assumes the equality of $1,000 in 1939 with $1,000 in 1949. However, the cost of living index was 70% higher in 1949 than in 1939. More important, this cost of living index is made up for moderate income families, while the very low income families with which we are here concerned spend a far larger portion of their total incomes on food and clothing, the items which rose the most; txyhe Bureau of Labor Statistics food index stood at 95.2 in 1939, while in 1949 it had risen to 201.9. Thus it took $2,120.80 in 1949 to buy the same amount of food that could be purchased for $1,000 in 1939.

“3. Hidden price rises that do not show in the index are not included. For example, rents were much higher in 1949 than the index shows. A large percentage of workers had to pay several months ‘bonus’ to renting agents, and secretly pay more than the rent ceiling in order to get a ‘controlled’ housing unit, do their own painting and repairs, etc., while in 1939, tenants were given far fuller maintenance plus one or two months ‘concessions’ (free rent) to induce them to take an apartment. None of this shows on the official index.

“4. Taxes are not taken into consideration by the so-called ‘economists.’ A worker earning $1,000 a year in 1939 paid no income tax, while a worker earning an amount with an equivalent purchasing power in 1948 might have to pay a tax as high as a possible $232. In addition, local sales and income taxes not included in the cost of living index must be taken into account, and they rose sharply between 1939 and 1949.

“5. Thus a family income of $1,000 in 1939 was equal to possibly $2,250 to $2,500 in 1949. However, facts show that exactly 40% of the income units of this country got less than $2,289 per year in 1949.

“These exact factual details completely destroy the propaganda of the NY Times report on this point. We see that the same 40% of the population that was bumping up against a $1,000 income ceiling in 1939 was an 1949 still under a ceiling of approximately the same purchasing power as in 1939.”
 

Average Hourly Wages Compared

The fact that the bottom 40% of the population is under the same relative income ceiling does not, of course, tell the tale for the whole of the working class. However, another significant comparison may be made between average hourly wages in 1949 and 1939. In 1939, the average hourly rate in manufacturing industry was 63.3c., while in 1949, it was $1.40. Thus if 1939 is considered as equal to 100, in 1949 hourly wage rates stood at 221. If this increase is compared with the cost of living increase as estimated in the Militant article quoted above, it can be seen that real hourly wages after taxes have, on the average, risen either very little or not at all.

These figures may come as a surprise to bemused economics professors who get their economics from the same place they get their salaries. But they will not surprise workers, and especially working-class housewives, who know that the average worker today has not a much greater purchasing power than the average fully employed worker in 1939, which was a bleak depression year.

There has been a certain improvement in the living standards of large sections of the working class. However, the improvement is more apparent than real, as a more detailed examination will show.

It will be seen from Table I that the hourly wage rates of workers in manufacturing industry increased by 121% between 1939 and 1949. This was roughly equivalent to the rise in the cost of living, including taxes, in the same period. The wage rates for manufacturing industry rose somewhat more than the average for all industries. Hence we may say that the hourly rates of American workers, calculated on a real basis, were about the same in 1949 as in 1939, give or take a few percent,

However, while hourly wage rates rose from 100 to 221, average weekly earnings rose from 100 to 230. This more rapid increase for weekly earnings than for hourly rates was due to an increase in average hours worked per week from 37.7 in 1939 to 39.2 in 1949, and to the firm establishment of the principle of overtime pay in a larger portion of industry by the union movement.

Our second big consideration is this: in 1939 official figures show that there were 9,480,000 unemployed, or 17.2% of the total labor force. By 1949 this had declined to 3,395,000, or 5.5% of the labor force, and by 1951 to 1,879,000, or 3% of the labor force.

Thus it can be seen that the improvements in the condition of the working people have resulted primarily from a greater average number of hours worked per week by each employed worker, and from the disappearance of mass unemployment. It will be seen that both of these factors can be subsumed under a single heading: an increase in hours worked by the total labor force of the country due to the war economy. But an increase in income deriving from an increase in hours worked is not at all a genuine increase in real wages.
 

The Relative Position: Production and Pay

Up to this point we have been concerned solely with the question of real wages. However, underlying this there is another, more important matter. That is the relative position of the working class, or what the working class gets balanced against what it produces.

What is generally called a “productivity” increase is in reality compounded of two factors: the intensity and the productivity of labor. A higher intensity of labor means an increase in man-hour output resulting from harder, more intensive work, without any improvement in the means or methods of production. A productivity increase, on the other hand, is an increase in the hourly output of labor by means of improvements in the machinery or techniques of the productive process, without any increase in the average intensity of labor.

It has been calculated that the average increase in output per man hour (this would include output increases due to either increased productivity or intensity or both) since 1933 has been about 3% a year for manufacturing industry, and slightly over 2% a year for all industry. The total increase in gross output per man hour as calculated by John W. Kendrick, a Department of Commerce economist, was 27.3% from 1939 to 1949. Thus there was an increase in output of well over one-fourth by the average American worker during each hour he worked in the same period that his real hourly pay, as we have shown, remained approximately stationary.

The Labor Research Association calculated in a little book, Trends in American Capitalism (International Pub. 1948), that the relative position of the American worker, that is, his buying power compared to his output, fell by 25% in the decade between 1919 and 1929. We see from the above data that, in the decade 1939 to 1949 a slightly greater decline took place.

There is another way to calculate the relative position of the worker, and that is by comparing the trend of his nominal (money) wages with the trend in the national income per capita. This method has the advantage that it eliminates all necessity to calculate the purchasing power of the workers’ wages, a topic which is the subject of much dispute and widely varying estimates. It further eliminates disputes as to whether taxes should be deducted in the calculation of real wages. It simply compares two things: the trend of money wages per worker, and the trend of the national income. For this purpose I have constructed per capita Table II, made up of the money figures and the indices of two items: average annual wage and salary payments per worker in private industry, and the national income per capita.

Booms, Depressions and the Position of the Workers

Two phenomena emerge from these very interesting figures. The first is the indubitable general trend towards an ever lower share of the national income received by the individual wage and salary worker. The second is that this general trend toward a worsening of the relative position of the wage worker is retarded and even temporarily reversed during periods of depression, and accelerated greatly by capitalist boom. This refers of course to only the employed portion of the working class.

The reason for this second phenomenon is not hard to understand. During periods of depression only a portion of the working class is employed at producing surplus value for the capitalist class, while during periods of boom, the entire working class (almost) is set to work at that most honored of all occupations. However, during both boom and depression virtually the entire working class must be maintained at some subsistence level. Even the unemployed must be kept alive; capitalism has not reached the point where it can compel society to countenance the death from rapid starvation of fifteen million workers and their families.

Thus it is a peculiar irony of capitalist development that the working class can expect a small and temporary improvement in its relative position only when it is subjected to its worst miseries and privations. On the other hand, capitalism permits the working class to produce during boom periods only upon the condition that it betters the relative position of the capitalist class and worsens its own with each passing month. This irony, however bitter, is not the product of any “evil intentions;” it is part of the very mechanism of capitalist production. In any event, it can now be clearly seen how foolish it is for the NY Times to attempt to show that a “social revolution” has taken place in income at the very time when the real trend is precisely the opposite. Such an attempt would have a far more likely basis in fact at the depth of a depression, but the editors of the Times would of course be far less likely to undertake it at such a time.

The increasing share in the national income which the working class loses is taken primarily by the corporations. In order to demonstrate this I have constructed Table III, which shows the growing percentage of the national income represented by corporate profits over the last four decades. It remains only to be added that the actual trend is far more favorable to the corporations than this chart shows. Due to the increasing pressure of corporate taxes, many new means of concealing corporate income have come into vogue during and since the second World War that were not in use prior to that time.

The same phenomena that were observable in Table II can be seen in Table III in inverted form. The relative position of the capitalist class is continually improving.

This is the general trend. However, this general trend is retarded in periods of depression and accelerated in periods of boom. In this we see an expression of the fact that the capitalist class is and can be enriched only by the labor of the working class. When it is forced to employ that labor on a smaller scale, as in the period 1930-1940, it cannot enrich itself as rapidly as when it exploits the labor of the working class upon a truly grand scale, as in the period from 1941 to the present.
 

The Real Trend and the Attempted Falsification

From various sources I have constructed Table IV. This table does not divide the population into economic classes, which is the most scientific approach, but into fifths according to income. In this table can be seen the continuous and general decline of the relative income of the lowest portions of the population.

The NY Times report, in trying to make a “social revolution” out of facts which actually show a regressive tendency, is forced to resort to a dishonest selection of figures in order to falsify the trend. It will be seen from Table IV that if the year 1937 is compared with 1948 the bottom 40% of the population shows a 1% increase in the percentage of the national income accruing to it. The Times report selects these two years for comparison, makes the comparison on a rough bar graph, which shows an increase but does not show whether that increase is 1% or 10%, and points triumphantly to a “social revolution.” Figures don’t lie, but ...

There is another aspect of the Times report with which we are not prepared to deal at present. It will be seen from Table IV that the portion of the national income received by the top fifth of the population remained roughly the same between 1910 and 1949. The Times report further indicates that according to Dr. Kuznets, the portion of the national income received by the top 1% of the population has decreased since the late Thirties. This is another “proof” of redistribution of income cited by the Times. If this fact is correct, it would not indicate a shift in relative income away from the capitalist class but rather an apparent redistribution of relative income within the top levels of the capitalist class. The full analysis of this point will have to await publication of Dr. Kuznets’ figures.

Riches and Poverty

We have cited sufficient material to show the declining relative position of the working class. This decline leads to a further general aspect of capitalist development. If the working class is restricted to subsistence as its share in the national income, it cannot enrich itself by saving. On the other hand, the capitalist class continually adds to its accumulation as a result of the “natural” workings of the capitalist mode of production. It may add more at one time and less at another, but since its profits are far above the level required for the most lavish subsistence of the capitalist class, its enrichment proceeds at all times.

This process is seen very graphically in the following figures, showing the net personal saving of the fifths of the population by income.

This shows an uninterrupted postwar trend, culminating in the 1948 situation where 99% of the total net saving done during that year were concentrated in the hands of the top fifth of the population, while the bottom two-fifths of the population were so-called “dis-savers,” spending more than they earned either by borrowing, or by spending accumulated savings. In 1949, about 35% of all spending units of the nation were “dis-savers.” The total amount that this bottom third of the people had to spend in excess of their earnings was about $14 billions. The Council of Economic Advisers has estimated that the “dis-savers” spent this borrowed or accumulated money chiefly for medical care, food and clothing.

Further facts show that the trend indicated by the figures in Table V did not come to an end in 1948, but has increased since that time. Whereas in 1948 only slightly more than the bottom 40% of the nation’s spending units had to spend more than they earned, by 1950 this had increased to a full 70% according to the Survey of Consumer Finances of the Federal Reserve Board.

In Table V we saw the distribution of net savings through the population divided into fifths by income. In the following table, taken from the 1950 Statistical Abstract, we can see the distribution of net savings by family groups arranged by size of income.

It will be seen from Table VI that all groups below $3,000 per year income taken as a whole were unable to do any net saving during 1948, and that the three groups taken together were “dis-savers” to the extent of 25% of the national total of net savings. This becomes particularly significant when compared with another fact: that the average wage or salary payment during 1948, as calculated by the Department of Commerce, was $2,812. The conclusion from these figures must be that family units had to climb well above the average wage or salary income before they could enter the portion of the population that was able to add to its savings in 1948. This conclusion does not hold for individuals, of course, but for the group as a whole.

The natural result of this trend is that an increasing portion of the population owns no liquid assets as shown by Table VII. This process of stripping down the population to complete dependence on current income has been accelerated since the end of World War II, at which time a considerable portion of the people had savings accumulated during the war.

The same source tells us that the highest tenth of consumer units ranked according to income held about $91 billions in liquid assets early in 1951, or 65% of the total for the nation.
 

The Process Beneath the Trends

The two trends with which we have been concerned in this article are the trend towards ever increasing inequality of income distribution, and the concentration of savings in the form of liquid assets in the hands of fewer and fewer people. It must be pointed out that these two trends are only phenomenal forms, appearances that derive from a more fundamental process going on further beneath the surface. This process is the increasing concentration of ownership and centralization of control over the means of production.

In the Economic Report to the President of January, 1950, the Council of Economic Advisers calculated that the 250 giant manufacturing corporations that dominate American industry emerged from the second World War with manufacturing facilities in their possession that were equal to the entire productive plant of the country before the war. In other words, these 250 capitalist monsters owned after the war as much as all of the 75,000 manufacturing corporations of the nation put together owned before the war. This fact gives us a partial glimpse of the process that underlies the trends discussed in this article.

To return once more to the New York Times and its “social revolution.” In his preface to the second edition of Capital, Karl Marx wrote of political economy:

“With the year 1830 came the decisive crisis ... Thenceforth, the class-struggle, practically as well as theoretically, took on more and more outspoken and threatening forms. It sounded the knell of scientific bourgeois economy. It was thenceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. In place of disinterested enquirers, there were hired prizefighters; in place of genuine scientific research, the bad conscience and evil intent of apologetic.”

To this devastatingly accurate appraisal, we need only make one amendment: the hired prizefighters with their “evil intent of apologetic” are still in the ring, but the bad conscience is gone, and in its place there has come a hardened and unregenerate cynicism.

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Last updated on 19.7.2006