1950s Capitalist Propaganda and Opportunistic Egalitarians

In yesterday's post, I wrote about the broad history of inequality under capitalism. In many countries that have undergone capitalist development, inequality has moved in three stages. First, inequality rapidly escalates. Second, the rise in inequality slows down and actually reverses. Third, inequality shoots up once again.

Interestingly, when the United States was in stage two, some advocates of capitalism became very fond of egalitarian arguments. Whereas Marx predicted that capitalism would cause inequality to increase inexorably, the second stage seemed to show that wasn't true:

As you can see, the market incomes of the bottom 90% (blue) actually grew faster than the market incomes of the top 10% (red) for quite some time, with the 1950s and 1960s being right on the crest of that trend. From this, Simon Kuznets, writing in the 1950s and 1960s, developed a whole theory of two-stage capitalist development, with the latter stage being a march towards egalitarianism. Although the rich continued to get richer, the poor got richer too and at a faster pace. Consequently, capitalism was supposed to generate an egalitarian order through this basic process (hat tip Mike Konczal):

This equalizing was not just empirically observed; it was also utilized normatively to prove American capitalism was so great. Whereas, today, defenders of our system largely reject the importance of distribution and even call references to it class war and class envy, advocates during the period when greater equalization was coinciding with American capitalism trumpeted egalitarian distributions as extremely important and pointed out that this is precisely what we had and where we were heading.

Of course, these were mostly opportunistic egalitarians, people who did not really care about equalizing distribution, but thought it worthwhile to pretend to so long as it could be mobilized to provide arguments for the system that they actually supported on other grounds. This 1955 propaganda film called "America's Distribution of Wealth" is the best example of this now-dead egalitarian defense of American capitalism:

In the video, the professor character first establishes that equitable distributions are essential to the justness of economic systems and then goes on to statistically demonstrate that the wealth and income of the country is widely dispersed. Here are some choice lines:

In order to have a proper appreciation of the American economic system, we must know how the national income is divided in America. In other words, we must examine the distribution of the great wealth produced through the operation of American capitalism. Is the distribution widespread or is the wealth of America concentrated in the hands of the few, as the socialists and communists say?


Basically, an economic system must fulfill two social needs of the population which it serves: first an adequate production of goods, and second an equitable distribution of those goods.


This brings us to the central question: the question of distribution. Are these economic benefits under American capitalism being extended to American wage or salary earners or would this big segment of the population be better off under socialism or communism?


If we keep [our system's] basic principles strong and vigorous in the years ahead, the opportunity of every American for a still-better living standard will certainly be enhanced. And perhaps even the disciplines of socialism and communism will come out of their shadowy pipe dreams and join us in our march of human progress.

As we all should know by now, this march of human progress in the form of sharing in the prosperity of economic growth essentially stopped four decades ago, at least insofar as market distribution is concerned. In that period, basically all income gains have flowed to the top 10 percent. Middle class (median) incomes became decoupled from productivity and entirely stagnated.

When it comes to wealth, it is, in fact, concentrated in the hands of the few "as the socialists and communists say." According to Edward Wolff's widely-cited SCF calculations, in 2010, the wealthiest 5% held 63% of the nation's wealth and wealthiest 20% held 89% of it. This means that the bottom 80% of the country held just 11% of its wealth. The story is worse for non-home wealth, with the bottom 80% holding just 4.6% of it.

But notice that the opportunistic egalitarianism of capitalism's defenders has now disappeared. When we were in the middle of American capitalism's period of economic equalization, the system was explicitly justified on the basis that it generated "first an adequate production of goods, and second an equitable distribution of those goods." If we take seriously the egalitarian prong of that prior general theory of economic justice (and we should), we'd have to conclude that, as presently constructed, our system is a failure.