Economic Class in the Twenty-First Century
This is the last of a series of three essays on Money, Income, and Class.
There is a common refrain in leftist circles, “The capitalists have the money, but we have the people!” The story is that we organize, and fight, and once we have made the working class aware of their class position and they escape the ideological confines of the propaganda-sphere, there is no option but for socialism to win. Thus, the slogan of Occupy Wall Street, “We are the 99%!” This boundless, triumphant optimism has sparked its fair share of revolutionary upheavals. But in the centuries since the predictions of working-class victory by Marx, it has started to ring hollow. To expropriate a line from a famous TV scene, if there’s so fucking many of us, how come we lose so goddamn always?
The standard answer is that the masses are deceived by propaganda and working-class movements are put down with force, and while this kind of oppression certainly plays its part, I am convinced that this is not the whole story. Instead, I will show that there is a sizable minority of the population, not a vanishingly small cabal of ultra-elites, who “benefits” in a raw, material sense from capitalism. The group of people who benefit financially from the system is larger than we think, and so winning will not come as naturally as we hope. But it is still possible. This is not to say that a large proportion of people are happy, or live a better life under capitalism than they would under socialism — it is merely to say the economic case is not as obvious as it first appears.
Our capitalist economy is the flawed machine which allows some people to “get out” of the system more in value than they “put in” as labor, and forces the rest to make do with only a small portion of the value they contributed — this is what I call exploitation. In this essay we will explore the distribution into classes of human beings on the receiving end of this economy.
By this economic definition, there are two classes: the class of people who get out more than they put in, and the class of people who put in more than they get out — the upper class (the exploiters) and the lower class (the exploited). These economic classes are not to be confused with social classes, such as landlords, small business owners, the professional-managerial class, tenants, proletarians, peasants, etc. While it is true that business owners, investors, and landlords are mostly in the upper class, and workers, debtors, and tenants are mostly in the lower class, it is their overall relationship with the economy and not their social positioning that defines class in this sense. We will analyze the exploitative relationships between social classes in future work. For our current purposes, class is defined not by one’s job title but their material income. Whoever makes a material income above the value of their labor ($78/hour, as we argued previously) is in the upper class, and whoever does not is in the lower class.
So how big are these two classes? We should not be satisfied with vague generalizations like “the vast majority” or hyperbole like “the 99%.” To answer this question, we will analyze the income distribution of the US.¹ The table which we are analyzing is the 2019 census distribution of the total household income into different income bins: the bottom 20%, the lower-middle 20%, the middle 20%, the upper-middle 20%, and the highest 20%, with the top 5% included separately. To make use of these statistics, we will need to make a few assumptions.
First, we will assume that the class distribution of household income is approximately the same as the class distribution of individual income. This is necessary only because the census data refers to household incomes, but an individual worker, who works a standard number of hours, is a much simpler economic unit than a household, which has a highly variable number of potential earners, workers, and income sources. All this means is that if the top 5% of households earn 23% of the household income, then it is also true that the top 5% of individual earners earn 23% of the individual income.
Second, we will assume that no matter where someone falls on the income distribution, they work the average number of hours per week, just as intensely as anyone else, and they therefore each create a uniform quantity of value. In other words, while individuals’ paychecks may differ, their labor contributions do not. This approximation invites attacks from both the right and the left, which we should acknowledge. From the right, one would argue that in fact the value produced by the lowest-earners is presumably less than that produced by the highest earners — after all, some kinds of labor are “skilled” and create much more value, and other kinds are “unskilled” and create very little value.² Further, the lowest-income earners tend to have a difficult time holding down any job whatsoever, and rarely work full-time. From the left, on the other hand, one might argue that it is in fact the rich (and the capitalists) who do not really create value. While they may have a nominal “job,” it is not really anything besides sitting in meetings all day, looking at graphs, and networking with other elites. Their jobs are neither intense, nor really necessary for production — in short, they perform “bullshit jobs” which exist not primarily to create value, but to enforce the mindset that everyone must be working. In this view it is also the lowest-paid workers who tend to work a higher number of hours than normal, to ensure that ends actually meet,³ while upper-class white-collar workers tend to afford vacations and time off. Both arguments have their merits, of course — a truly robust study of the class makeup of the United States must ensure that workers are credited with the correct amounts of value-creation, in accordance with their work-hours, intensity, skill, and the actual social necessity of their product. However, absent that data, let us assume that these over- and underestimates of each individual’s contribution all balance out.
Third, we will assume that what individuals “get out” of the economy is equal to their pay. We dealt with this concept in the last essay. Unfortunately, our approximation here is to ignore that work, and assume that money income is a sufficiently good estimate of material income. In truth, this also has both overestimating and underestimating factors. On the one hand, imperialism allows citizens in the imperial core to buy imported commodities far below their value, and thus as consumers they receive more value than their income reflects, and on the other hand, exploitation by banks and landlords lowers the value which debtors and tenants really get to take home. Again, barring further analysis of the relative magnitude of these counteracting effects, we will assume this is an adequate starting approximation.
Now that we’ve established these three assumptions, let us analyze the data itself.
The grey bars are the actual income distribution, i.e. the fraction of national income that currently goes into each income bin. The blue bars represent what a uniform distribution of income would look like, i.e. each quintile would make 20% of the total, and the top bins, being less than a full quintile in size, would make less. Since we have assumed that all workers produce the same amount of value, the difference between the grey and blue bars is exploitation — value is mined out of the left three bins and deposited into the right three bins. This means that approximately the bottom 60% of income-earners take home less than their share of the economy, and the top 40% take home more than their share. This 60–40 split is a very imprecise approximation. Let us look into this in more detail.
To help us visualize our own place in this distribution, we will transform this data into yearly individual incomes. By multiplying the fractions above by the total national income ($21T), and dividing by the number of income-earners in each bin (20%, 15%, or 5% of 157 million workers), we determine the average income of each bin (here is where we use the assumption that individual income distribution is equal to household income distribution).
In this representation, I have made the the right two bins narrower than the previous four to reflect their smaller populations. The blue region again represents a uniform distribution of income, but this time in the form of the average wage ($78/hour) multiplied by the average number of working-hours per person per year (35 hours/week times 52 weeks), giving an annual mean salary of $137K. Once again, the difference between the grey bars which represent the final distribution of income, and the blue bar representing our assumed contribution of work, shows a large amount of national income has been transferred from the bottom to the top.
Let us smooth out this distribution, to analyze what fraction of the population is below the line (i.e. the lower class). We do this by making the assumption that each bin is linearly distributed, such that the left point is the minimum value (starting at zero for the leftmost bin), the midpoint is the bin value, and so the right point is predetermined, and forms the minimum value for the next bin.⁴ The intersection of the horizontal blue line (the average income) with the black distribution is the percentage of people who receive less out of the economy than they put in. In other words, this is the cutoff point between the upper and lower classes.
Using this graph, approximately 65% of the population is in the lower class, and 35% is in the upper class. Materially, this means about a third of people, on net, get more out of the system than they put in, and the lower class outnumbers the upper class, in this country, roughly 2-to-1. The reader is encouraged to identify themselves in this picture. What is your economic percentile? Is it above the line, or below? What about your friends and family? Where do they fall? This is not to draw up “enemy lines” for the Revolution, but to help orient yourself to your, and others’, real material situation. The argument you make for Socialism has to be different, depending on who you want to convince. If they are below the line, you can make the strictly economic case: “you would make more money under socialism, and would not struggle to make ends meet.” If they are above the line, you need to instead make a more nuanced argument, because if you tell them that they will make more money under socialism, they will correctly suspect that you are lying to them. Socialism still benefits the vast majority of people — even the ones whose labor is currently paid at or barely above its value. For example, under Socialism, one will no longer need to be afraid of the astronomical price of a medical emergency, or stressed about the future competitiveness of one’s children, or insecure about the long-term viability of one’s job. These anxieties all stem from the same source, which is the fear of being cast back below that line. Socialism abolishes the line, and thus makes that fear obsolete. That being said, it is still a challenge to hammer that point home.
If we want to have any hope of convincing the masses, we will need to contend with the propaganda and media systems of this country. The Right tries to convince the working class to support their capitalist exploiters, potentially by tricking them into thinking they too can become capitalists one day. We need to counter this attack, and also to bring the most persuadable of the upper class into the fold. But the point here is that all attempts at persuasion aside, there remains a structural reality: insofar as the economy imparts a real, material force on individuals, they are pulled to the left if they earn less than about $137K/year,⁵ and pulled to the right if they make more.
It is not the case that only a vanishingly tiny elite is getting any benefit from capitalism. While the exploiting class is a minority, it is one with real numbers behind it, and real connections to working-class people. If we keep pretending this class is this tiny group of unfathomable plutocrats — we will keep losing, growing demoralized and increasingly frustrated. As a philosopher might say, hic rodus, hic salta!⁶ It turns out that a sizable minority of people do in fact have something to lose besides their chains.
Footnotes:
¹ Specifically, this is Census table H-2, “Share of Aggregate Income Received by Each Fifth and Top 5 Percent of All Households: 1967 to 2019”
https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-households.html. Python scripts for generating the images in this work are available on request. The average income of $137K/year is created using OECD data with a method described more fully in my previous essay here.
² I quote an esteemed semi-literate Facebook commenter, responding to my previous essay on the average wage: “So a burger flipper should make the exactly salary as a neurosurgeon???”
³ Marx makes a comment to this effect in Volume I. “[The industrial reserve army] is characterised by maximum of working-time, and minimum of wages. We have learnt to know its chief form under the rubric of ‘domestic industry.’” (https://www.marxists.org/archive/marx/works/download/pdf/Capital-Volume-I.pdf, page 450)
⁴ It is worth pointing out that the very top 0.1%, the Musks and Bezoses of the world, are obviously not represented on this line, which maxes out at around a compensation of $800K/year. This is a result of the assumption of linearity — in reality the top bin looks a lot like the overall distribution: most of it goes to the very top fifth of that group, rather than each member making just a little bit more than the last. This hyper-concentration at the very top has no effect on our conclusion, however, and would only end up mattering if the class cutoff point were inside the top 5% bin, instead of the much more linear 60th-80th percentile bin.
⁵ This number is probably an underestimate, for a couple of reasons, and so the upper class is smaller than we suggest here. First, because households at the very top of the income ladder tend to be smaller, and thus value is even more concentrated into the hands of fewer value-producing individuals, and because the “middle class” around this value is very likely to be paying rents and/or mortgages and thus have a material income less than their actual income. Income at the top of the distribution is also often underreported. In this spending survey, the total reported 2019 household income is only about half of GNI! Taking GNI as a more reliable number because it includes income in capital appreciation, we fix this by assuming that unreported income has the same distribution as reported income, even though it is virtually certain that it is even more highly skewed towards the top. Yet, the number $137,000 is still used this essay, like the $78 in the “Money” essay, because the point I want to make is that a concrete number which distinguishes the classes exists and can be estimated, even if the estimate is difficult to do with existing government records (designed to do something very different).
⁶ This is famously quoted by Marx at the end of Chapter 5 of Capital, Volume I, after he has explained the basic crux of what is a capitalist (someone who extracts surplus-value on the basis of their owned value). It is approximately translated in the Penguin Classics edition as, “here is the ball, now run with it!”, i.e., “so this is the actual situation you have to deal with, it doesn’t matter what the situation ‘should’ be!” — a more literal translation and explanation can be found in the edition here https://www.marxists.org/archive/marx/works/download/pdf/Capital-Volume-I.pdf, page 118, including noting that Marx is himself echoing Hegel’s use of this reference.
