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Class And The Economy

The Economic Dimension of Political Economy

Economic Inequality

Toys of the Rich

Boat builders havent seem a boom like this since, well, never. The Roaring
Twenties had its share of huge boats, like the 407-foot Savorona, built for the family that
built the Brooklyn Bridge. The Savorona, which is still floating, boasted a floor-heated
Turkish bath built from 260 tons of hand-carved marble. Yet never have so many
megayachts hit the water at once. Some of the newly nautical rich are building entire
armadas. Paul Allen uses his six-story Octopus as a main boat, but keeps his 300-foot
Tatoosh and 198-foot Meduse on hand as backups, and guest yachts for friends and family.
At the Ft.Lauderdale boat show in 2005, I got a glimpse of the latest innovation in
boater blingthe 170-foot Paladin, known as a shadow boat. A shadow boat is a floating
garage that tags along with the main yacht and carries all the extra toys, like cars and
smaller boats. Its a kind of yacht for your megayacht. The Paladin, now owned by a Saudi,
holds four to six cars, several motorcycles, jet skis, a submarine and a helicopter. Its also
got a decompression changer, a walk-in freezer, gym and night-vision cameras.
The company that built the Paladin is about to launch a new model called the City
of Vegas with six state rooms, a helicopter deck and, for those boaters who dont like the
open water, a full-sized swimming pool (Frank 2007: 126-127).

o reports Robert Frank writing in his Richistan: A Journey Through the American Wealth
S Boom and the Lives of the New Rich. The above quote gives but a small taste of the new
rich. Yet it shares with other accounts of the spending habits of the incredibly wealthy a general
sense that for all the fun it is to have such over-the-top wealth, such as yachts longer than football
fields, one could have a very good life without it.


Where Will I Sleep?

Some of the wealthier members of Richistan have the luxury of sleeping in a different one
of their homes or yachts in different parts of the world using their private jets almost every night if
they wish and some do. But what about the huge proportion of Americans at the very bottom of the
occupational ladder. Barbara Ehrenreich decided to see for herself by attempting to support herself
for a few months on jobs in the $7 per hour category. In the late spring of 1998 she sought work in
Key West, Florida finding employment for a time as waitress at $2.43 an hour plus tips. Ehrenreich
notes in her Nickel and Dimed: On (Not) Getting By in America, that in low paying restaurant jobs
the greatest worry for the worker is affording a place to live. She surveyed the workers at the
restaurant where she was working, a family restaurant named the Hearthside, as to their
accommodations. Some examples of these follow as well as her comparison to her own situation.

Gail is sharing a room in a well-known downtown flophouse for $250 a week. Her
roommate, a male friend, has begun hitting on her, driving her nuts, but the rent would be
impossible alone. . . .

Marianne, who is a breakfast server, and her boyfriend are paying $170 a week for a one-
person trailer.

Billy, who at $10 an hour is the wealthiest of us, lives in the trailer he owns, paying only the
$400-a-month lot fee. . . .

Tina, another sever, and her husband are paying $60 a night for a room in the Days Inn.
This is because they have no car and the Days Inn is in walking distance of the Hearthside.
When Marianne is tossed out of her trailer for subletting (which is against the trailer park
rules), she leaves her boyfriend and moves in with Tina and her husband.

Joan, who had fooled me with her numerous and tasteful outfits (hostesses wear their own
clothes), lives in a van parked behind a shopping center at night and showers in Tinas motel
room. The clothes are from thrift shops (2002: 25-26).

Initially, from her middle-class perspective Ehrenreich finds these arrangements to be somewhat
improvident. She re-evaluates, however, after a discussion with Gail who relates her plan to move
into the Days Inn to escape her roommate.

I am astounded: how she can even think of paying $40 to $60 per day? But if I was afraid
of sounding like a social worker, I have come out just sounding like a fool. She squints at
me in disbelief: And where am I supposed to get a months rent and a months deposit for
an apartment?

In her experiment at trying to live on a $7 per hour wage, Ehrenreich had allotted herself $1300
dollars in startup funds, a thousand of which was to go for deposit and first months rent on an
apartment. In reality she wasnt starting her experiment with poverty from absolutely nothing as so
many people do today. There are many reasons for so many people not having a head start as

Ehrenreich arranged for her self. But even when it can be done, an illness or an accident can put one
back at square one with zero resources or more likely in debt.
Yet, while the poor struggle from day to day for the likes of food and lodging and on average
have not seen improvement since the 1970s, the rich are doing very well indeed. Their ranks have

Count of M illionaires and M ultimillionaires, 1983-2007

Year Total No. Of Number of Households (in thousands) with

Households Net Worth Equal to or Exceeding (in
(1,000s) 1995$):

1 Million 5 Million 10 Million

1983 83,893 2,411 247.0 66.5

1989 93,009 3,024 296.6 64.9

1992 95,462 3,104 277.4 41.6

1995 99,101 3,015 474.1 190.4

1998 102,547 4,783 755.5 239.4

2001 106,494 5,892 1067.8 338.4

2004 112,107 6,466 1,120.0 344.8

2007 116,120 7,274 1,466.8 464.2

% 38.4 201.7 493.8 598.3


Source: Wolfe (2010) using SCF data.

Table 8.1

grown rapidly, as can be seen in Table 8.1. However, the table is somewhat deceiving in that the
real wealth is no where near as low as a mere $10 million. The Forbes magazine top 400 wealthiest
persons in the world now contains only billionaires and most of them are Americans. No one objects
to people living comfortably, few object to people becoming rich, but has the desire for ever more
by the few grown so greatly that it has made life almost impossible for those at the bottom?

The Social Construction of Normality

If we are not controlled by ZOG, U.N. troops in black helicopters, or any other demons of
the militia movement, then how does the world work? Are our beliefs any less biased than the
ridiculous ideas of the militias? As we build role-identities within groups, we incorporate the
reality and normality of at least part of the groups social structure and culture within our self-
concepts. Although less extreme than the Zimbardo prison simulation and the militia groups, we
come to accept as normal what others might consider strange.
As noted previously, in any group (including whole societies) some persons come to exert
significant control over the technology of the group. Often they can convert the resources provided
by this control of technology into control of the social structure. Next they will modify that social
structure to favor themselves. This control of the social structure can in turn be used to influence

the culture of the group. In fact the culture can be altered in such a way that it makes such control
seem legitimate. Thus, the culture may be biased in favor of those who control significant resources,
but the bias would not appear as such. Rather, most members of the society would think of such
legitimating cultural ideas as reasonable and normal and, therefore, the inequality they justify as
quite reasonable as well. We can hold such beliefs because we have been exposed to them as normal
our entire lives. Ideologies that we are unaware of holding, including those biased against our own
interests, can be taken by us as simply matters of reality with seemingly no reasonable alternatives.
As noted previously, our thinking and actions derived from such ideologies are like being on
One way to search for such bias is to examine data on
the extent of wealth inequality in a society. Significant
inequality may reveal more than bias in the culture. It may
also reveal the inequality itself as a source of various social
problems. This raises the question of another possible
source for the complaints about society made by members of
the militias and other groups. Is there an actual basis for the
concerns of extreme critics of the present society, even
though many, such as the militias, have misidentified the
source of the real problem?
Percent Distribution of Wealth
by Percent of Household, 2007
Who Has the Money? Chart 8.1

Inequality of Wealth
The top 2-3 percent of the population in the average industrial society owns about 33 percent
of the wealth. The United States, however, is far from average. According to data gathered by the
Federal Reserve, the wealthiest 1 percent of Americans had 34.6 percent of the net worth of the
entire nation in 2007 (Chart 8.1)1. Net worth is the value of what one owns after subtracting ones
debts. In other words, if you sold everything you
had and used the money from the sales to pay off
your debts, what remained would be your net
worth (wealth). Unfortunately for many of us,
what remains are some debts. Such persons have
negative wealth.
However, before looking at any more of
the real numbers it is helpful to think about how
an equal division of wealth would look. Chart 8.2
shows that if wealth were equally divided, a small
proportion of the population would receive a small
proportion of the wealth. The tiny sliver showing
the Top 0.5 percent of the population would not be
rich. It would hold only of 1 percent of the

Chart 8.2

The enormity of the inequality of wealth between the rich and everyone else can be seen even
more clearly from data for 1983. By going back to this data from 1983 we can see a big difference
even within the top 1 percent, as shown in Chart 8.3. Also, we can get a less conservative estimate
than the 2007 data (Chart 8.1), as will be explained below. This study divides the top 1 percent of
all U.S. households into two (Top 0.5 percent and Next 0.5 percent). Chart 8.3 shows the actual
proportion of the wealth held by different proportions of the
population. Here the Top 0.5 percent of households ranked
by wealth have an incredible 28.1 percent of the wealth.
The label super rich fits very well. The Next 0.5 percent
holds a mere 9 percent of the wealth. Still, this is great
wealth and deserving of the label very rich. Again for
2007 (Chart 8.1), the remaining 65.4 percent of the wealth
of the nation was spread out among the remaining 99
percent of the U.S. population. However, from Chart 8.3 we
can observe that wealth distribution is also spread out in a
very skewed way for the bottom 99 percent as well. In fact
the next 9 percent of these 1983 wealth holders have nearly
as much wealth as the top 1 percent leaving only 27.9
percent for the bottom 9 out 10 American households (see
Chart 8.3). This skewing of the wealth to a greater share
than equal distribution continues until about 22 percent from
the top. Even after that the skewing of wealth continues.
Chart 8.3
However, now each 1 percent is getting increasingly less
than 1 percent of the wealth until a point is reached near the
bottom 20 percent where people have negative wealth.
Overall, this is a distribution similar to an average agrarian society (the societies from which
the industrial societies evolved and which were extremely unequal in the distribution of wealth and
income). In the agrarian societies, wealth is more highly concentrated in the hands of a few than is
normally the case in industrial societies. Some people criticize the governments of the agrarian
societies for the great inequities that exist within those societies. Americans often join in this
criticism thinking of their society as more equal than other industrial societies. Yet, the reality of
living in the United States is the existence of vastly more inequality in wealth than most of its
citizens ever dreamed.
The equal distribution shown in Chart 8.2 is the ideal of the unworkable form of ownership--
pure communism (to be discussed shortly). However, when moving away from this distribution
where everyone would have the same portion, there comes a point where a few have too much. At
some point the distribution becomes so unequal that such inequality causes severe social problems,
as will be seen in subsequent chapters. Unfortunately, since the 1970s inequality has gotten worse.
Despite some improvements before the 1970s, as Bennett Harrison and Barry Bluestone put it, the
United States has taken The Great U-Turn in a return to greater inequality.2 It is likely not to change
significantly for the better within the foreseeable future.3

Edward Wolff also finds an increase in inequality since the 1970s:

In the 1970s, the level of wealth inequality in the United States was comparable to that of
other developed industrial countries. By the 1980s, the United States had become the most
unequal society in terms of wealth among the advanced industrial nations. In the 1990s, the
run-up in stock prices has added to the disparities in wealth. By 1997, one man, Bill Gates,
was worth about as much as the 40 million American households at the bottom of the wealth

To put Wolffs comparison of the wealth of Bill Gates to that of the bottom 40 million American
households in context, the bottom 40 million households equaled about half of all the households
in the U.S. in 1997.5

Mean Net Worth Holdings and Income by Wealth or Income Class,


(in thousands, 2007 dollars)

Year Top Next Next Next Top 4th 3rd Bottom All
1% 4% 5% 10% 20% 20% 20% 40%

A. Net Wealth

1983 9,127.0 1,510.0 656.6 354.5 1,099.7 170.0 70.6 5.9 270.4

2007 18,529.0 3,656.0 1,201.3 641.9 2,278.9 291.0 106.6 2.2 536.1

% Change 103.0 142.3 83.0 81.1 107.2 71.2 50.1 -62.9 98.2

B. Non-Home Wealth

1983 7870.0 1,152.0 450.3 201.8 837.4 72.5 15.6 -4.0 183.5

2007 17,116.0 2,936.0 874.4 404.1 1,863.6 135.7 26.0 -10.5 400.9

% Change 117.5 154.8 94.2 100.2 122.5 87.3 66.6 -159.6 118.5

C. Income

1983 786.4 203.2 126.2 94.7 158.8 66.3 43.3 18.9 61.2

2007 1,786.8 334.4 166.5 120.0 257.9 74.4 46.7 20.2 83.9

% Change 127.2 64.6 32.0 26.7 62.3 12.7 7.7 7.1 37.1

Source: Computations by Wolf from the 1983 and 2007 Survey of Consumer Finances.
For computations of percentile shares of net worth, households are ranked according to their
net worth.
For computations of percentile shares of non-home wealth, households are ranked according
to their non-home wealth.
For computations of percentile shares of income, households are ranked according to their

Table 8.2 6

The mean (average) dollar amounts of wealth holdings, as shown in Table 8.2 may help us
better comprehend the trend toward greater inequality. The Top 1 percent increased the dollar value
of their wealth by 103 percent between 1983 and 2007 as the average (mean) value per household
moved from $9,127,000 to $18,529,000 (in 2007 dollars). Equally important to our understanding
of social problems, as will be argued in subsequent chapters, is the 62.9 percent decrease for the
Bottom 40% of households. Here are forty times the number of households as in the Top 1
percent. The mean wealth of these households dropped from a mere $5,900 in 1983 to $2,200
dollars in 2007. Thus, unlike the over $18 million at the disposal of the average household of the
Top 1%, they must face all the contingencies of life with an average of about $2,200 beyond their
income. If a person with this low level of wealth must have a car in order to keep a job and the cars
transmission fails, it would take nearly all their wealth to repair the car. This is because almost their
entire pay check would already be committed to items like food and housing. Furthermore, some
of that wealth needed to repair the car was based on the value of the car before the transmission
failed. Clearly, a huge proportion of Americans live right on the edge of being out on the street.

Inequality in Income
Wealth, of course, is what you have left if you sell everything of worth that you own and pay
off all your debts. Thus, wealth is a measure of the assets you already have. Income, on the other
hand, is a means to increase your assets. Income may come from money or other property you
receive over time from selling your services (a job). Even a disability check from the government
is income. Income can also come from profits you make from using property that you inherited such
as interest from bonds.
There is always less inequality in income than there is in wealth, yet income inequality is a
huge source of wealth inequality and has increased tremendously in recent decades as well. Table
8.2 shows a 127.2 percent increase in incomes for the top 1 percent of households ranked by income
while the bottom 40 percent of households received only a 7.1 percent increase. This is not a case
of all boats rising together with a rising tide, but rather an increasing chasm between the well-off and
the rest of the society. The magnitude of the increase in this gap becomes even more clear when we
look at the segments of the top 1 percent of households ranked by income shown in Table 8.3.
Income Growth at the Top, 1970-2000
Average incomes for almost all Americans declined from 1970 to 2000, but the
higher a person stood in the income ladder the more that income grew.

Pretax incomes in year 2000 dollars

Bottom 90 to 95 95 to 99 99 to 99.5 to 99.9 to Top 13,400

90% 99.5 99.9 99.99 Households

1970 $27,060 80,148 115,472 202,792 317,582 722,480 3,641,285

2000 27,035 103,860 178,067 384,192 777,450 3,049,226 23,969,767

Percentage -0.1% 29.6% 54.2% 89.5% 144.8% 322.0% 558.3%


Source: Piketty & Saez [Table in David Cay Johnston, Perfectly Legal (2003)]

Table 8.3

The percentage change in income shown in Table 8.3 for the period of 1970-2000 is slightly
different than the period of 1983 to 2007 shown in Table 8.2. This data compared to the data in
Table 8.2 show the bottom a little flatter in increase with a -0.1 percent for the bottom 90 percent
of households. Of even more interest it shows the tremendous differences within the top 1 percent.
Here we see the bottom of the top 1 percent doing quite well with an 89.5 percent increase. This
definitely is not flat. Yet it is paltry compared to the 558.3 percent increase of the top 13,400
Remember that the dollar figures shown in Table 8.3 are corrected to reflect the value of the
dollar in the year 2000. This gives us a sense of the buying power of these average incomes.
Strikingly, we see that while the average income for the bottom 9 out of 10 American households
was about $27,000 over these 30 years, the Top 13,400 Households increased their income from
a paltry $3,641,285 in 1970 to $23,969,767 in 2000. If average Americans in the bottom 90 percent
income bracket really knew about the extent of these changes in the last 30 years, it is likely they
would wonder about several things. Why was it that only highest income Americans received a
boost in their economic quality of life? Why was it that over this 30 year period the income of the
very highest income bracket went up an average of 559.3% when it was already 135 times the
average of nine out of ten Americans? Why should such a huge proportion of the population as the
Bottom 90% have to get by on from a pittance to a modest but low income when the wealthy not
only did very well but dramatically increased their incomes? Clearly, what all this data tells us is
that inequality in income and wealth in the United States has increased greatly in recent decades.
This posses the question of how could this happen in a democracy? This question is of greatest
importance to every citizen of the country and the answer is complex. We begin our search for an
answer by looking even further back in our history for changes in wealth and income inequality.
Share of wealth held by the Bottom 99% and Top 1%
in the United States 1922-2007
Year Bottom99% Top 1% Year Bottom99% Top 1%
1922 63.3% 36.7% 1979 79.5% 20.5%
1929 55.8% 44.2% 1981 75.2% 24.8%
1933 66.7% 33.3% 1983 69.1% 30.9%
1939 63.6% 36.4% 1986 68.1% 31.9%
1945 70.2% 29.8% 1989 64.3% 35.7%
1949 72.9% 27.1% 1992 62.8% 37.2%
1953 68.8% 31.2% 1995 61.5% 38.5%
1962 68.2% 31.8% 1998 61.9% 38.1%
1965 65.6% 34.4% 2001 66.6% 33.4%
1969 68.9% 31.1% 2004 65.7% 34.3%
1972 70.9% 29.1% 2007 66.4% 34.6%
1976 80.1% 19.9%
Source: Table 3 from G. William Domhoff, Who Rules America website
( Original Sources: 1922-1989 data
from Wolff, E. N. (1996) Top Heavy. New York: The New Press.
1992-2007 data from Wolff, E.N. (2009) Recent Trends in household wealth in the U.S., update
to 2007: Rising debt and the middle class squeeze Working Paper in progress Annadale-on-
Hudson, N.Y.: The Levy Economics Institute of Bard College.

Table 8.4

Nothing New
As can be seen from Table 8.4 the last time wealth was so unequally distributed in the U.S.
was just before the Great Depression! In 1929 the Top 1% of households ranked by wealth had an
incredible 44.2 percent of the entire wealth of the nation. As a result of the Great Depression and
the reforms implemented to insure that such a thing never happened again, this share dropped to 19.9
percent by 1976. Yet, by that date the unraveling of these reforms had already begun and the
percentage of the wealth of the nation held by the Top 1% began to rise again. Just before the Great
Recession became obvious to everyone in the Fall of 2008 the wealth of the Top 1% was about 34.6
percent (in 2007)--near its pre-Depression high. As has been argued above, such a level of inequality
produces crippling burdens for the rest of the society.
The Center for Budget and Policy Priorities has displayed data from respected researchers
in Figure 8.1 that complements Table 8.4 by showing the income changes between the top 1 percent
and the rest of the nation. Here we
see in the column 1923 to 1929"
the tremendous degree of income
inequality prior to the Great
Depression where the income of the
top 1 percent increases 70 while the
bottom 90 percent realize only
about a 15 percent gain. Figure 8.1
then shows us dramatic post-
depression increases for the bottom
90 percent of the population for the
periods 1960 to 1969" and 1976
to 1979." After that the increases in
income start to favor the top 1
percent again. By 2002 to 2007"
the increase for the top 1 percent is
about 65 percent and nearly equal to
the pre-Depression high.
These long term trends show
Figure 8.1 marked increases and decreases
from a very high base level of
continuing inequality in wealth and income. It is likely that we will always find significant
inequality in every society at every time. Yet, because the problems that result from the great
increases in inequality can be so severe, it is important that we try to understand why we experienced
such great swings within the twentieth century. This is doubly important as we come close to the
incredible levels of inequality in wealth and power found just before the greatest and most
devastating of all the depressions we have ever experienced.

Inequality in Assets
In understanding how inequality is perpetuated, it is also very important to examine the kind
of assets (wealth) that are owned. The wealthy have the overwhelming share of assets that can be

used to generate more wealth. Table 8.5 calls these, Assets Held Primarily by the Wealthy. It
distinguishes them from Assets and Liabilities Held Primarily by the Non-Wealthy. It is clear from
Table 8.5 that the super rich and the very rich (who together constitute the Top 1.0 percent) own the
majority of the most important assets that make it possible to gather even more wealth.7 They have
around half or more of all the stocks, financial securities, trusts, and business equity (the net worth
of businesses other than stocks) of the nation. They only have 35.1 percent of the non-home real
estate, but the Next 9.0 percent owns even more than that at 43.6 percent so that the Bottom 90
percent has only 21.3 percent. Indeed, between the holdings of the Top 1.0 percent and the Next 9.0
percent most of the wealth generating assets of the nation are kept out of the hands of the Bottom
90.0 percent of the households of the nation. This means of course that the Bottom 90.0 percent will
have to earn a living from working at a job. Many of the Top 10.0 percent work as well, but much
more often for themselves. Even more often much of what the Top 10.0 percent earn comes from
their wealth generating assets. Perhaps most important, as will be discussed at the end of this
chapter, is the political importance of the Assets Held Primarily by the Wealthy. These assets that
generate more wealth can also bring political power far beyond what comes from one vote per
The Percent of Total Assets Held by Levels of Wealth, 20018
Percent of Total Population by W ealth

Asset Type Top 1.0% Next Bottom Total

9.0% 90.0%

Assets Held Prim arily by the Wealthy

Stocks & M utual funds 44.1 40.4 15.5 100%
Financial securities 58.0 30.6 11.3 100%
Trusts 46.3 40.4 13.3 100%
Business Equity 57.3 32.3 10.4 100%
Non-Home Real Estate 34.9 43.6 21.5 100%
Total for Group 47.8 37.7 14.5 100%
Assets and Liabilities Held Prim arily
by the Non-Wealthy
Principal Residence 8.9 28.0 63.0 100%
Deposits (a) 21.7 35.5 42.8 100%
Life Insurance 12.5 33.5 54.0 100%
Pension Accounts (b) 13.3 47.0 39.6 100%
Total for Group 11.9 34.0 54.1 100%

Total Debt 5.8 20.1 74.1 100%

a) Includes dem and deposits, savings deposits, tim e deposits, m oney arkt funds, and certificates of deposit.
b) IR A s, K eogh plans, 401(k) plans, the accum ulated value of defined contribution pension plans, and other retirem ent accounts.

Table 8.5

International Inequalities in Wealth
Table 8.6 shows that even by the mid-1980s the share of the total national wealth held by the
Top 1 percent of U.S. households (35 percent) was double that of the Top 1 percent of Canada (17
percent) and Sweden (16 percent). The Top 1 percent in the U.S. had a much higher percentage of
the total national wealth than even the Top 1 percent of France (26 percent in 1986)--the country
with the next greatest degree of inequality in wealth. Clearly, inequality in the United States is one
of the highest, perhaps the highest, of all the industrial and postindustrial nations of the world.

The Inequality of Household Wealth in Selected Countries, Mid-


Percent of Total Wealth held by

Top 1% Top 3%
United States, 1983 35 56
Canada, 1984 17 38
France, 1986 26 43
Japan, 1984 N.A. 25
16 31
Sweden, 1985/86
United Kingdom, 1983 25 N.A.
United Kingdom, 1986 22 N.A.

Table 8.610

Racial Inequalities in Wealth in the U.S.

Inequalities in the distribution of wealth by race class are also significant as Table 8.7
shows.11 This table shows differences in net worth between households defined as black and white.
The families in Table 8.7 are also divided up by monthly income. For example, for those families
that earn from $50,000 to $74,999 per year, the average black family has just a little more than a
third ($101,300) of the net worth of the average white family in the same income bracket ($288,500).
Some of this difference in net worth would seem to be coming from the greater ownership of stocks
by whites. As can be seen in Table 8.7, a greater percentage of whites own stocks than blacks, and
those stock holdings are worth more. Finally, the ratio of stocks to total assets is greater as well.
These differences exist for all income classes.

Wealth and Stock Ownership by Race and Income Class, 2001

Percentage Average Net Worth Percent Average Stock Ratio of Stocks
Frequency (In thousands, Owning Stock Holdings To Total
Distribution (Owners Only, Assets
2001 dollars)
In thousands,
2001 dollars)
Income Whites Blacks Whites Blacks Ratio Whites Blacks Whites Blacks Ratio Whites Blacks

Under 12.8 31.2 61.2 23.7 0.39 13.7 7.3 69.5 67.7 0.97 13.8 16.7

$15,000- 13.4 18.4 114.2 31.7 0.28 30.8 19.6 43.2 10.0 0.23 10.1 4.1

$25,000- 28.7 24.6 164.7 38.7 0.24 51.8 40.4 72.1 19.4 0.27 18.8 11.6

$50,000- 18.4 14.8 288.5 101.3 0.35 74.2 67.0 109.7 35.7 0.33 23.3 14.8

$75,000 26.7 10.9 1283.4 260.9 0.20 86.5 77.5 453.8 85.7 0.19 27.7 18.3
and over

All 100.0 100.0 465.8 66.3 0.14 57.5 34.2 232.0 42.8 0.18 25.4 14.9

Source: Computations by Wolff (2004) from the 2001 Survey of Consumer

Stock ownership includes ownership of stock shares and indirect ownership
through mutual funds, trusts, and IRAs, Keogh plans, 401(k) plans, and other
retirement accounts.
Whites refers to Non-Hispanic whites only. Blacks refers to non-Hispanic
African-Americans only.
Table 8.712

There are, no doubt, many reasons for these disparities. Among the possible explanations
is the practice of red lining. Although illegal and not as widespread as some persons suggest, there
are still lending organizations that engage in red lining. These organizations demand higher down
payments and/or higher interest rates for loans, from persons of certain category classes than for
European Americans. Mortgage applications on residential and business property are sometimes red
lined. This means that an African American with the same monthly income and other risk factors
for a loan as a European American may not get the loan that the European American applicant
would. As a result, African Americans denied a loan are not able to receive the tax advantages of
residential mortgages and other advantages that come from getting a loan. Many European
Americans are unaware of red lining. Such persons may think that non-European Americans are
engaging in economic transactions on an equal basis with themselves. Consequently, they believe
that non-European Americans should be able to accrue the same level of wealth as they do. When

this does not always happen, it is unfortunately the case that some European Americans tend to
blame the victims of this process. Even more unfortunately, such blame is often cast not as
individual failings upon the part of the non-European Americans but as failing of a racial category
class. Unwittingly, such European Americans are developing their own racist attitudes from what
they take to be their experiences with other races.
No doubt there are many other reasons for the inequality found in Table 8.7, including in the
U.S. the recent expansion of the African American middle class. Inheriting some wealth makes it
somewhat easier to get a good education, open a business, or engage in other activities which can
generate even more wealth. New arrivals to the middle class will have little to no inherited wealth
compared to families that have been in the middle class for over a generation. Here, the African-
American new arrivals to the middle class cannot yet draw very heavily on inheritance for some of
their wealth or use that inheritance to produce more wealth.

In sum we can say that just before the great depression wealth inequality in the United States
was extremely high even for a country that has the highest level of inequality of all the
technologically developed societies. The depression and the reforms brought on by it significantly
decreased the level of inequality all though it remained extremely high until the 1980s. Since then
inequality has significantly increased again, although not quiet to pre-depression levels. We need
to ask why has this happened, what are its consequences, and what can be done about it?
We might also want to note that prosperity theology and positive thinking have greatly
increased since the 1980s as well. This would seem to indicate that wishing for more stuff has not
been working for most people despite the claims of the proponents of these ideas.

Political Economy

In any social system some parts and relationships have more influence on the character of the
system than other parts and relationships. Those parts and relationships that we call the political
economy of a social system are the central parts and relationships of any social system. To
understand the problems of a society it is essential to begin by studying its political economy.
The twentieth-century trend toward disciplinary specialization has brought us political
science, economics, and sociology, among many other disciplines. Before this, however, there was
an area of study called political economy, which was principally a combination of what is today
economics and political science. Thus, there was the realization in the era of the study of political
economy, that has been largely lost, that the political, economic, and social class dimensions of
society are all intertwined.13 This interrelationship was reflected in what Gerhard Lenski meant by
power, privilege, and prestige (status), while explicitly taking a systems point of view.14 Our
examination of societal types in Chapter VII was greatly indebted to Lenskis pioneering research.
Today it is also clear that neurology, psychology, and sociology among other disciplines are also
The political economy of a given society is not only a reflection of its technology, as could
be inferred from Chapter VII even though we had not yet used the phrase political economy. It
is also based on the intertwining of understanding, meaning, and control.

The many interconnections that constitute the political economy of a society contribute to
some social problems and constitute a context for others. However, before one can talk intelligently
about this intertwining, one must examine some terminology and principles in addition to those that
were introduced in previous chapters. We must now probe the economic and political dimensions
of political economy. The first to be discussed will be the economic dimension. A brief examination
of politics will follow. In essence, this will be the examination of the reciprocal relationships
between wealth and power within a society. As we have already seen from the data presented above,
inequality in wealth and income has increased in recent decades in the United States well beyond
their normally very high levels. This reflects enormous differences in power which bring into
question the very existence of democracy in this country. How does the average persons
understanding of political economy support or resist this power? To probe this question demands
first a look at the economics of political economy which we begin now.

Types of Economies: What Works

Economic Exchange
Economics deals with exchanges of goods and services between individuals and among
groups. The well-known economist Robert Heilbroner notes that market and command are two of
three main types of economies.15 Because these are the only ones found to any significant degree
in industrial and postindustrial societies, they will be our focus here. Before pursuing the nature of
these two types of economies, it is important to point out that we often confuse them with two forms
of ownership rights. This confusion of market and command economies is with capitalism and
socialism as forms of ownership. All of these concepts will now be examined.
Most people are quite familiar with the principles of market economies, such as the principles
of supply and demand. We are less familiar, however, with command. In this form of economy, the
government commands the production of particular goods in particular ways and the rendering of
certain services. Examples of command economies were formerly found in many so-called
communist countries. (The definition of communism shall be examined shortly.)
Market economies and command economies are the opposites of each other. Market
economies are, in effect, bottom up. Here individuals make the decisions about how they will make
economic exchanges, even though, admittedly, they may be strongly pushed by sellers to make
certain exchanges. Command economies, on the other hand, are top down. In this form of exchange,
governments control the transactions.
Most of us also think market economies can do no wrong and command economies can do
no right. Of course, if this were really so, it is unlikely that those governments that started with
market economies would have adopted considerable amounts of command. Nevertheless, the trend
over time has been toward mixed economies. The reason for this trend toward mixed economies is
that both market and command have major flaws and each has at least a major asset. Furthermore,
the flaws of each are offset to a degree by the advantages of the other.

Command Economies
Let us begin with the less familiar type of economy--command. Its disadvantages are
significant. First, command economies often emphasize the interests of those in command. If a
small set of powerful people control the economy, then what gets produced is what they want and
not necessarily what anyone else wants. This, of course, is to the advantage of those in control and
to the disadvantage of the rest of the society. Second, command economies are impossible to plan
fully. Being a top down procedure, there are always little details at the middle and bottom of the
economy that the planners fail to take into account. It is the inability to consider these details that
can cause major problems.16 There are simply too many things to take into account to plan fully.
Third, command economies often have low productivity. With so many activities of the workers
planned, there is little room for individual initiative. Yet, individual initiative is precisely what is
often needed to take advantage of changing situations. In a command economy one need not always
do a good job of the work to which one is assigned. Since the workers get paid by the state, the
paycheck will usually be there whether the workers are productive or not, unless there are procedures
for insuring quality production. These are clearly some significant disadvantages to command as a
form of economy.17
On the other hand, command can sometimes address the interests of the whole. For
example, before the creation of the Food and Drug Administration (FDA), patent medicines often
contained opium. This was in a wide-open market system guided by the principle of caveat emptor,
let the buyer beware. Buying such opium-laced medicine could lead to addiction and
consequent increased purchases. This was great for the seller and a disaster for the buyer,
particularly the vast majority who had no idea that they were ingesting opium. The FDA has not
stopped all such unscrupulous behavior--it cannot. However, by a top down exercise of command
they have protected the society to a degree impossible under a pure market.

Market Economies
The advantages of market economies are, for one, their ability to meet the demand for goods
and services for people in general, not just for those who control the government. Second, since they
are planned from the bottom up they are at least efficient in the short-term. Third, because success
in the market can be very profitable, producers will work hard. Thus, markets are very productive.
These three advantages are the opposites of the three problems with command.
Still, in market economies one finds disadvantages as well. This is clear in the point just
made about patent medicines. Market economies can sometimes neglect the interests of the whole.
The inability of market economies to protect the whole society from pollution and resource
depletion, however, may be even more important than protection from drugs added to our food and
Secondly, market economies sometimes fail to protect the weaker members of society. Well
into the nineteenth century children as young as five years of age often worked in U.S. factories.
They generally worked the same number of hours as adults. That was about seventy to seventy-five
hours a week. They often worked under hazardous conditions and conditions detrimental to ones
long-term health, just as did many adults. To improve safety and health conditions would have been
expensive. The manufacturer who ventured forth on his own to do so was often jeopardizing his
business because improvements could so add to his costs of production as to price his product right

out of the market. The same situation applied to hiring children. Many early manufacturing jobs
were quite simple and could be done by children. Children could be paid less than adults. Thus, the
master, as the owners were sometimes called, could cut costs by hiring children. This then became
a systems problem for the owner who did not believe that children should work long hours in a
filthy factory. If that owner refused to hire children, he may have increased his production costs
relative to the production costs of his competitors. Likely his costs would have increased to the
point where many people would have purchased the lower-cost products made by his competitor.
Thus, in a system such as this even the good guys were virtually forced to neglect safety and health
and to hire children.
We now have protection through the application of command, such as the oversight of OSHA
(Occupational Safety and Health Administration). We have child labor laws, as well. Thus, abuses
of workers, and particularly children, have been greatly reduced in the United States. However, they
are far from having been entirely eliminated. Unfortunately, there are extreme abuses of child labor
in many agrarian societies today. Yet, persons in the industrial societies benefit from these abuses
in the form of cheaper goods.
Finally, market economies tend to become monopolistic. As the old saying goes the rich
get richer. In the past the so-called communist nations looked to Karl Marx for guiding principles
in political economy. The capitalist nations, on the other hand, have looked to Adam Smith. In his
treatise, The Wealth of Nations, Smith points to the advantage of markets. He argues that in making
economic exchanges there exists the invisible guiding hand of the marketplace. With hundreds of
producers for each type of goods, each producer must sell for a minimum profit. Producers that raise
their prices to increase their profits will price themselves out of the marketplace. The reason is
simple. Consumers will buy the lesser priced goods of their competitors. According to Smith, the
market economy offers reasonably priced commodities and services of good quality because of
competition. One problem with this theory is that sellers do not like to make minimal profits. Who
can blame them? It is always a pleasure to make more money with no increase in effort. The way
to make greater profits is to decrease competition, that is, to move away from a pure market. This
again is a property of the system. Those producers who (through whatever means) control a little
bit bigger market share than others have an advantage. Suppose that all businesses making
widgets use machines to do so. However, because the volume of their sales is higher, the
companies with bigger market share often garner some savings because of their high volume. For
example, they can afford to buy raw resources at discounts because they are buying in larger volume.
Also, more expensive machines may produce more units of product (widgets). Such large volume
businesses can spread the costs of those machines across a larger number of widgets (economy of
scale). Thus, they can make a slightly larger profit on the sale of each widget produced by such a
machine, just as they did by getting a discount on the resources used by the machine. These savings
from dealing in large volume give them an opportunity to sell at a slightly lower price and leads to
even greater sales volume. The big get bigger and the big can get rich.18 Some smaller
manufacturers may be forced out of business. This leaves an even greater market share for the large
manufacturers. If this trend were left unchecked, one large firm could theoretically dominate each
Fortunately, things are seldom left unchecked. In the U.S. at the end of the last century it
became clear that monopolies were a real possibility. Legislation was passed to attempt to prevent

such a situation from developing. The most potent of these additions of command to the economy
was the Sherman Antitrust Act. This act allowed the federal government to take any business it
considered a near monopoly to court. If the government could prove its allegations, the court would
order the breakup of the company into smaller competing companies. This law was not nearly as
effective as many of its supporters had hoped it would be. Still, it did prevent monopoly.

The Next Best Thing to Monopoly

Command cannot stop concentration as effectively as it was at first hoped. This is because
of another form of concentration besides monopoly. This form of economic concentration dominates
many industries. It has nearly the same effect as monopoly. This form of concentration is called
oligopoly. Technically, oligopoly is defined as control of 51 percent or more of a market by four
or fewer producers. Many industries, for example, breakfast cereals and newspapers, are
oligopolistic. Some industries, even though they charge high prices (such as womens apparel) are
not oligopolistic. Simply put, for maximizing profit they are the next best thing to monopoly.
In those industries that are oligopolistic the few large firms need not coordinate their
noncompetitive activities as a single monopolistic firm can do. All they have to do is to realize that
it is not in their interests to compete by price. Advertising gimmicks and new gadgets of little value
(such as 1950s fins on cars, as noted below) are acceptable ways of appearing to compete.
However, the outcome of this form of competition is no real competition at all. The big firms can
still dominate the market in a silent agreement to leave major market shares for each other. This
keeps the little firms from having any real growth. Thus, the firms that form the oligopoly can all
sell their products at a higher price than they would in a real market. This gives them substantial
There are other results of oligopoly besides inequality in profits. A good way to understand
these other consequences and to illustrate what has already been said is to look at the U.S.
automobile industry during the 1950s. The world economy was not fully functioning until after the
1950s. Even though there was significant international trade, economies were still national in
character. Just before the beginning of the world economy the automobile industry in the U.S. was
oligopolistic. The automotive market was dominated by the big three and one half (the now defunct
American Motors, although smaller should rightly be included). Automobile production exhibited
the classic signs of oligopoly. Planned obsolescence --designing products to quickly degrade--was
the rule. Competition was not by price, but by fins and eventually by opera windows and
landau roofs. Buy from us. We have bigger fins. General Motors was big enough even in the
1940s to have forced all of its competitors out of business. However, it was not so foolish as to
become subject to the Sherman Antitrust Act. Instead it reveled in even larger profits than the
excessive ones of the other large automotive manufacturers.
The American public had no choice but to buy shoddy, overpriced cars. Early in the
twentieth century automobile producers and tire companies (among others) bought out the existing
public transportation such as streetcars. They then
proceeded to close down these competitors of the The American public had no
automobile. Consequently, our entire way of life
has become increasingly dependent upon cars and
choice but to buy shoddy,
trucks. In a practical sense, there were no other real overpriced cars.

choices but to buy from the big boys. Many of us never even noticed this because for other reasons
our average incomes were still rising as they had been since World War II. Nevertheless, the
automobile companies were fleecing us. However, that is not where the problem ended.
Oligopoly has another tragic flaw. Without effective competition, the companies turn from
lean and mean to being overstaffed with yes men. These include incompetent brothers-in-law,
shoe lickers, and every form of unimaginative and uncreative paper shuffler. Of course, giant firms
also have some competent people. However, in times of oligopoly their influence wanes. Because
of the lack of competition that comes with oligopoly those without talent can often manipulate their
way up the ladder. This is just not considered the American way. More important, it made
American companies extremely vulnerable to foreign competition once technological change made
a fully developed world market possible.
With the influx of better-made, lower-priced foreign cars, American automobile
manufacturers permanently lost a significant share of the domestic market. This might at first seem
like some form of justice, given their past exploitation of the American public. However, because
of their inability to compete, they lost so much market share so rapidly that it hurt the whole country.
It cost the jobs of many Americans in automotive and related manufacturing. Thus, a huge
proportion of the labor force suffered before competition forced a restructuring of the economy.
Americans paid dearly for having so many oligopolistic industries.

Mixed Economies and the World Market

The disadvantages of market are clearly significant.19 Indeed, long ago we realized that we
could not tolerate a pure market economy. On the other hand, as noted above, market economies
have distinct advantages over command economies. Among these as noted above, market economies
are tremendously productive. They also can produce what people want and not just what others think
they should have. The Chinese tried more than
forty years of command with its low productivity. Indeed, long ago we realized
During that time they were greatly embarrassed by
the great productivity of little city states such as that we could not tolerate a
Hong Kong and Singapore. These tiny territories pure market economy.
greatly outproduced China per capita by using
market economies. As a consequence, the Chinese have decided to move further away from
command. Belatedly, even the Russians realized that the market countries had left them behind.
Thus, they eventually sought to add more market mechanisms to their economy. Over time the so-
called Eastern block nations moved to incorporate more market into their command economies.
Indeed, since near the beginning of the 1990s the Eastern block nations have largely emphasized
market. As well, the so-called Western block nations incorporated more command into their market
economies during the twentieth century.
The advantages of market economies tend to offset the disadvantages of command.
Likewise, the advantages of command counteract the worst parts of markets. Consequently, a
mixture of command and market is desirable.20
Fortunately, as a true world-wide economy has emerged as a market economy, it has led to
a decrease in oligopoly. This has benefitted consumers. However, a new trend can be predicted
from following out the logic of market economies. The world economy may some day become

oligopolistic or even monopolistic. This is likely a number of decades away, but when it comes it
will be painful for the consumer. Such adverse conditions for the average person will likely lead to
pressures for world-level command to prevent monopoly. But what kind of command would be
possible at the world level? Would a world government be necessary for effective command to
exist? Unfortunately, world-level command to counter the worst aspects of world-level market is
also a pressure for a world-level society. Are we in transition to many independent information
societies, as we have seen for the industrial societies? Or, might we be headed for a world-level
information society in which the present societies of the world are reduced to the equivalent of states
or provinces within it?
The world market has led to intense competition. Now more than ever before, products are
rapidly upgraded for better performance. Moreover, new competitive products are often introduced
as well. Thus, a company must be constantly improving its own products. There is still considerable
advantage in volume production. However, if the bigger companies cannot improve their products
as fast as smaller companies, it will not help them to produce more of what will not sell. Clearly,
there was a trend toward monopoly between about 1870 and 1970. This was a trend of ever more
mergers into yet larger companies. Although still continuing overall, the trend toward monopoly has
been slowed a little by some highly competitive smaller companies producing for niche markets.

Control Through Ownership

Types of Ownership Rights

We do ourselves great disservice if we stop our investigation of economics at this point. An
additional dimension of economies is usually ignored, that is, the matter of ownership rights.
Ownership rights are simply means of conferring legitimate control over the basic means of
production. Such production includes factories (manufacturing), service businesses, real estate, and
mines. Legitimate control means that owners have the right to do with these economic assets what
they wish. There are three fundamental forms of ownership rights: capitalism, socialism, and
communism.21 The reason that ownership rights are generally ignored is that a form of ownership
is not spoken of by itself. Almost always people unwittingly combine a form of ownership rights
with a type of economy. For example, both staunch believers in capitalism and staunch believers
in socialism think of socialism in much the same way. Both have historically meant a combination
of socialist ownership rights and a command economy. When people of either of these viewpoints
define capitalism they also exhibit considerable agreement. Both are referring to capitalist
ownership rights combined with market economics.22 In the U.S. people call this latter combination
the free enterprise system. On the other hand, they generally totally misunderstand communism,
as we shall see shortly. Well, with so much confusion over the meaning of ownership rights, just
what are they?
Under capitalism, private individuals and groups have the right to own the basic means
of production.23 Again, this includes the tools of production such as machines and factories, as well
as the resources from which things are produced. Today much more of this ownership is in the form
of stocks issued by corporations than private or partnership owned companies.

Socialism is at the opposite pole from capitalism. Under socialism, the community as a
whole or (in recent times) the state owns the basic means of production. Private individuals are
permitted to own anything but the basic means of production. Thus, under socialism, people may
own houses and speedboats. They may have large bank accounts or small, but they cannot own
(through stocks or otherwise) the factories, mines, service companies, or significant amounts of land.
Many people identify communism with socialism. People who consider themselves noncommunist
often speak of communism and socialism as though they were the same thing. Even the Marxist-
Leninist governments did not call themselves communist but rather socialist. Karl Marx and
Friedrich Engels presented the theoretical underpinnings of communism.24 They looked for the day
in the distant future when socialism would be transformed into communism. Of course, under
communism the basic means of production and resources belong to the state, but it is more than that.

When Communism Received Its Real Chance

To understand communism, it is necessary to first divorce communism as a form of

ownership rights from the ideology of revolution. Many idealists have attempted to enact the
communist dream by forming communes. Such communities were based on pure communism
without any revolutionary intent or overtones. These communes have made some of the best
attempts to make communism work in the United States. Some communes here have given
communism its best shot, because they were based upon religion. Clearly, this is not a Marxist
position, for Marx felt that religion had no proper place in a society.
Marxs great insight into the social construction of reality allowed him to see how religion
often legitimated the authority of the dominant class in a society. Marx did not look at this as the
misuse and abuse of religion, but as a problem inherent in religion. Consequently, Marx eschewed
religion calling it the opiate of the masses. However, people want and need some explanation of
what life means. If this is not a traditional religious explanation then a secular ideology will come
to take its place. Lenski and Lenski have pointed to the equivalence in certain respects of the belief
in communism in Russia to the belief in religion. In other words, people will seek explanations of
the meaning of life. They may use traditional religious ideas or a secular ideology. There is another
reason for saying that Marxs antireligious stance was an overreaction to his insight into the social
construction of reality. Many persons who are highly religious find no incompatibility between their
religious beliefs and a perspective that notes the social construction of perceived reality. They, of
course, are often critical of the human arrangements involved in the actual practice of their religion.
They note that we can misuse and abuse religion and, unfortunately, often succumb to the temptation
to do so.
The point is that people often hold religious beliefs more tenaciously than beliefs in worldly
authorities such as Marx. Thus, those communists who base their communism on religion will fight
longer and harder to make it work. They believe that God has said to share and live totally as equals.
Holding on to such a belief in times of trial is easier than holding on to a good principle presented
by a social theorist. Communities like the Amana colony, the Oneida colony, and New Harmony
were based on strong religious belief. They tried to live like the early Christians. As reported in the

New Testament, the first Christians gave all that they had to the Church. In return for such support
they had all their needs met by the Church. This lasted for only a few hundred years in the early
Church. It lasted for much less than that in the nineteenth-century communistic communes. Today
the remnants of the Amana colony and the Oneida colony are capitalistic enterprises. What is left
of New Harmony is a tourist attraction. Communism failed in these cases for the precise reasons that
most school children learn that communism will fail. Those who contributed most felt over the years
that they were exploited. They felt that they were being used by those unwilling to carry an
appropriate share of the burdens of the community.25

Communism is the form of ownership in which the society owns most forms of property. When
an individual needs something, the state will give it. In return, the individual should give all her or
his talent for the good of the whole. For a world of extremely unequal distribution of wealth or
privilege, such as ours, this sounds like a great way to go, at least on the surface. In actual practice,
however, it has been unworkable. Of the three historical forms of ownership rights, communism has
proven itself not to be a useful option. It is attractive to idealists but unworkable.
The experiments with communism at the national level have started with socialism-
command. Supposedly, this would lead to communism, however, it merely produced a new ruling
class under the various Marxist regimes. There is a horrid irony in the bloody revolutions in Russia,
China, Cuba, and elsewhere. These revolutions were for the expressed purpose of doing away with
the ruling and exploitative capitalist class that dominated each of these societies. Unfortunately, the
capitalist class was in each case replaced by a government composed principally of Communist Party
members. Over time members of the Party became the new ruling class. Control of government
through control of property was replaced
by control of government through
revolution. This in turn produced control
of property through control of government.
Inequality slowly reentered these societies.
The Party members, as the new class in the
communist countries, enriched themselves.
This inequality was difficult to alter
because of the extreme suppression of any
opposition to the new class.

Combinations of Economies and

Ownership Rights
Capitalism and socialism are the
two historically important forms of
ownership rights. Yet, they cannot be
understood by themselves. Besides a form
of ownership rights, every society must
also have a type of economy. As already
mentioned, historically capitalism was
identified with market, and the two
Table 8.9

together were called the free enterprise system. On the other hand, most people identify socialism
with command. Yet, ownership rights and economies are two very different dimensions of political
economy. Table 8.9 shows the traditional combinations of ownership rights and types of economies
by Xs. The Chinese, after the passing of Chairman Mao, sought other combinations. At first they
held to socialism but realized that command has very significant problems. Their solution was to
add more market to their economy. They gave farmers greater freedom to choose what to produce
and how to market it. This was so successful in the rural sector of the economy that they have also
introduced it into the industrial sector.26 In recent years China has allowed full capitalist enterprises,
although much of its production is done through the government, especially military, control of
companies (socialism) that then sell on the world market.
The possibility of market socialism has long been debated.27 Recent models of market
socialism within an industrial economy have become quite sophisticated.28 Some recent models of
socialism do not even have governmental ownership of corporations. In some proposals firms are
envisioned as operating independently of state control, with boards of directors representing either
workers or various institutions (banks, mutual funds, pension funds) that hold stock in the firms or
are responsible for their financing.29 These models are not in the strict sense socialist, although in
a more general sense they are. They are all attempts to have more equal distribution of profits--that
is greater benefit to the average person--than is usually possible under capitalism. Sweden has
experimented with radical redistribution of ownership and wealth. This has been done through the
employees investment funds started in the 1970s.30 As well, it has developed strong cooperation
in planning among government, unions, and corporations.31 Michael Maccoby suggests with respect
to Sweden that,

With less than half the population of Canada, it has larger, more successful multinational
firms. On a national level, Sweden is a living case of what is possible to achieve when
managers take on the challenge of creating a better society as well as more marketable
products. To the best Swedish managers, that last statement might sound too idealistic.
They would perhaps say, Only by creating a better society can we succeed in the

Consequently, the distribution of wealth and income in Sweden is much more equal than it is in the
United States. The two are entirely different in the resources they have, their histories, and in the
problems they face. Thus, no suggestion is being made here that the U.S. can or should follow the
development of political economy similar to that of the Swedes. On the other hand, industrial
societies can clearly have vastly different degrees of wealth and income inequality. Furthermore,
these differences in inequality are related to how these societies have become organized.33

The Dominance of Ownership Rights

We are sometimes led to believe that property rights are sacred. This idea is promoted by
persons and organizations (such as transnational corporations) that already own considerable
property. However, excessive property rights can interfere with other rights. This is clearly evident
in gigantic hog or chicken farms. Here 30,000-40,000 animals are raised in close quarters. The
waste produced by these animals is stored in huge so-called lagoons. These are small lakes of
feces and urine that can be smelled for miles. They are also breeding grounds for billions of huge

flies. In many states in the U.S. such operations are allowed to open if they are more than 750 feet
from an established residence. What about the property rights or the rights to the pursuit of
happiness for the occupants of the farm house located 751 feet away or even 5280 feet (one mile)
away? Who would ever want to buy a house or a farm with such a foul smelling neighbor? Thus,
owners would not likely be able to sell their property even if they wished to escape from such
ruination of their lives. For most people the value of their home is the biggest part of their wealth.
Who has the right to take that value away because they want to make money for themselves? Why
should residents have to now hide every meal under a napkin to protect it from the flies that found
their way into the house? Should one be kept awake all night because the industrial farm has its
barns cleaned during the night?
What right do industrial farms have to feed large doses of antibiotics to their animals? This
is deemed necessary by the industrial farms because the close proximity of the penned animals to
each other allows infectious diseases to spread easily. Unfortunately, consumers are also fed large
amounts of powerful antibiotics when they eat the poultry and meat produced this way. The bacteria
in a persons body can become resistant to the antibiotics they might need during an illness. Would
the cheaper industrial farm-raised meat and poultry really seem like such a bargain if those eating
it knew what the animals had eaten? A very larger percentage of the feed given to these animals is
made up of the excrement of those same or other animals? Dried feces is mixed in with the rest of
the food for these animals. This is done because this manure still contains a significant amount of
protein that was not absorbed by the creatures who ate it first. Eating what was once fed on
excrement does not seem very appetizing.
What right do these industrial farms have to create their animal waste lagoons?34 In floods
they are the source of vast amounts of feces and thus bacterially infected water that enters thousands
of homes through the flood waters. This was the case with the hurricanes in the Carolinas in the
Spring of 2000. Hundreds of thousands of people were exposed to putrid disease-ridden water that
had mingled with lagoon water which then infiltrated their homes and covered their lands.35
Property rights reign supreme in the United States today. However, the property with the
greatest rights belong to the most powerful persons or corporations. The property rights of other
people become expendable when asserting those rights would interfere with the wishes of the rich
and powerful. Other rights such as the right to health and happiness are clearly secondary to property
rights if recognized as rights at all.
Rights were central to the founding of the first modern democracy, as can clearly be
discerned from the following:

We hold these truths to be self-evident, that all men are created equal, that they are
endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty
and the pursuit of Happiness. That to secure these rights, Governments are instituted
among Men, deriving their just powers from the consent of the governed, That whenever
any Form of Government becomes destructive of these ends, it is the Right of the People to
alter or to abolish it, and to institute new Government, laying its foundation on such
principles and organizing its powers in such form, as to them shall seem most likely to effect
their Safety and Happiness.36

What has happened to the country established under such a declaration of independence?

After all, great inequality in income and wealth translate into great inequality in quality of life. In
a land where the people supposedly rule and have the unalienable Right to Life, Liberty, and the
pursuit of Happiness, how can the quality of life of the average person be set aside for the benefit
of the few? Making the rights of individuals sacrosanct is not possible because if in the pursuit of
a particular persons self-interest and therefore the pursuit of that persons rights, that person injures
another, what has happened to that other persons rights not to be injured. Surely injuries to ones
physical well being and ones economic livelihood are detrimental to ones Safety and Happiness.
It is very easy to think of ones own liberties as though everyone could pursue and should
pursue their individual interests. What an idyllic society! But a moments thought, especially from
a systems perspective, would force one back to reality. We do not live separate from one another.
What one person does effects the quality of life of others. All life involves compromise. Too much
individualism and the whole system is degraded and many people suffer. Too much sacrifice for the
good of the whole and liberty for individuals is trampled upon. Besides, there never will be a society
that just looks after the interests of the whole. Some people will always exert influence in such a
way as to benefit themselves and selected others. But the same thing happens with extreme
individualism and the supposed liberty it brings. Overtime through various combinations of hard
work, creativity, conniving, deception, and brute force some people will dominate and exploit others.
Life is always a contest between individual liberty (including those who would abuse other people
and society as a whole) and societal strength and the general welfare. Different forms of economic
systems such as totally unregulated capitalist-market or socialist-command constitute one dimension
in this struggle between individualism and communalism. The other dimension of the struggle
involves political organization which we shall turn to next.

1. Constructed from Table 2 of Wolff (2004: 30).
2. Harrison and Bluestone (1990); see Newman (1988) for some of the nonmonetary consequences of this
3. The above estimates of wealth distribution are very likely conservative. The reason for this is the way the
U.S. Federal Reserve has gathered and treated its data on trusts. A trust is something average people do not
know much about because they cannot afford to have one. In fact, according to a U.S. Congressional study,
the upper 0.5 percent of the wealthiest households in the nation own 77 percent of the trusts. Trusts are legal
paper entities for special purposes. For example, a trust can be set up with a bank to provide an income for
ones descendants or to support an art gallery. Lawrence Mishel and David Frankel purposely made
conservative calculations in the way they treated trusts in Chart 8.3. Consequently, Chart 8.3 also shows
conservative percentages for the distribution of net worth in the United States. Maurice Zeitlin makes a less
conservative estimate for 1984. Zeitlin found that,

the richest 1 percent of the families in our country own a fifth of all the real estate (and over twice that
much of the commercial real estate), three fifths of the corporate stock, and over four fifths of all the
trust assets owned by all of us. Summed up, the super rich have 35.1 percent and the very rich another
6.7 percent of the net worth of every thing owned by all American families: together, the richest 1
percent of families own over two-fifths of the net wealth owned by every family in America.

Zeitlin estimates that the bottom half of American households (with respect to wealth) has only 3 percent of
the net worth. Nearly all of this bottom half (45.1 percent to be exact) as of 1984 had an average net worth

of only $25,000. The bottom one-third had a net worth of less than $10,000. Contrast these figures with the
1983 data for the super rich (top 0.5 percent) with an average net worth per household of $6,238,000. Look
at the very rich (next 0.5 percent) with a meager $1,988,000. Again, Zeitlins estimates are less conservative
than those used by the Federal Reserve. So, to err on the side of estimating less inequality than might
actually exist, the following discussion of inequality will use the more conservative government estimates.
4. Wolff (1998: 131-132).
5. For percentage of holdings of wealth and income for different segments of society see the following table.
This complements the table in the text that shows these holdings in dollar amounts.
The Size Distribution of Wealth and Income, 1983-2007
Percentage Share of Wealth or Income Held by:
Year Top Next Next Next 4th 3rd 2nd & 1st Total 5th
1.0% 4.0% 5.0% 10.0% 20.0% 20.0% (Bottom) (Top )
40.0% 20.0%
A. Net Worth
1983 33.8 22.3 12.1 13.1 12.6 5.2 0.9 100% 81.3
1989 37.4 21.6 11.6 13.0 12.3 4.8 -0.7 100% 83.5
1992 37.2 22.8 11.8 12.0 11.5 4.4 0.4 100% 83.8
1995 38.5 21.8 11.5 12.1 11.4 4.5 0.2 100% 83.9
1998 38.1 21.3 11.5 12.5 11.9 4.5 0.2 100% 83.4
2001 33.4 25.8 12.3 12.9 11.3 3.9 0.3 100% 84.4
2004 34.3 24.6 12.3 13.4 11.3 3.8 0.2 100% 84.6
2007 34.6 27.3 11.2 12.0 10.9 4.0 0.2 100% 85.0
A. Non-home Wealth

1983 42.9 25.1 12.3 11.0 7.9 1.7 -0.9 100% 91.3
1989 46.9 23.9 11.6 11.0 7.4 1.7 -2.5 100% 93.4
1992 45.6 25.0 11.5 10.2 7.3 1.5 -1.1 100% 92.3
1995 47.2 24.6 11.2 10.1 6.9 1.4 -1.3 100% 93.0
1998 47.3 21.0 11.4 11.2 8.3 1.9 -1.1 100% 90.9
2001 39.7 27.8 12.3 11.4 7.8 1.7 -0.7 100% 91.3
2004 42.2 26.7 12.0 11.6 7.3 1.2 -1.1 100% 92.5
2007 42.7 29.3 10.9 10.1 6.8 1.3 -1.0 100% 93.0
C. Income

1982 12.8 13.3 10.3 15.5 21.6 14.2 12.3 100% 51.9
1988 16.6 13.3 10.4 15.2 20.6 13.2 10.7 100% 55.6
1991 15.7 14.8 10.6 15.3 20.4 12.8 10.5 100% 56.4
1994 14.4 14.5 10.4 15.9 20.6 13.6 10.7 100% 55.1
1997 16.6 14.4 10.2 15.0 20.5 12.8 10.5 100% 56.2
2000 20.0 15.2 10.0 13.5 19.0 12.3 10.1 100% 58.6
2003 17.0 15.0 10.9 14.9 19.9 12.1 10.2 100% 57.9
2006 21.3 15.9 9.9 14.3 17.8 11.1 9.6 100% 61.4
Source: Own computations from the 1983, 1989, 1992, 1995, 1998, 2001, 2004, and 2007 SCF.
For the computation of percentile shares of net worth, households are ranked according to their net worth;
for percentile shares of non-home wealth, households are ranked according to their non-home wealth; and
for percentile shares of income, households are ranked according to their net income.

6. Modified version of Table 4 in Wolff (2007: 15). The figures for Non-home Wealth and Income have
been removed.
7. Stock ownership is ownership of the nations businesses. This in turn is ownership of the places of
employment. This is not to say that the richest 1 percent of Americans directly control many of the nations
businesses through their stock ownership. Nevertheless, they control far more businesses than most people
appreciate. Zeitlin notes a study by Philip Burch, Jr., that examines many years of the financial press. He
looked for evidence of control of large corporations by individual families. Burch found that at least 60
percent of the 500 top industrial corporations are probably (236 of them) or possibly (64 of them) under
the control of an identifiable family or group of associates. (Zeitlin, 1989: 159). In other words, Burch
grouped probably . . . under the control of an identifiable family or group of associates with possibly . .
. under the control. Using this combination of probably and possibly he found at least three out of five
of the biggest industrial corporations under such control.
The argument is often made that known families or groups of associates dont really control many
businesses any longer because they are really run by managers. That is, the managers do not own enough
stock to have influence through ownership but do make the major decisions for the businesses they are
employed to manage. Thus, supposedly today, managers run the big businesses, not owners. As a result,
supposedly the wealth from these businesses no longer goes to a class of wealthy owners. However, William
Domhoff also has uncovered some interesting connections between wealthy families and businesses that are
supposedly only run by managers (Domhoff, 1967 and 1970). What else would one really expect? Why
wouldnt those who have been successful continue to look after their own interests?
Furthermore, by the end of the twentieth century mangers were able to arrange for compensation
packages ten or more times what was the average in the 1960s and 1970s. By this time some of them were
becoming like wealthy owners even though they may not have had controlling levels of stock like some of
owners Burch found.
8. The title for this table that Wolff used was The Percent of Total Assets Held by Wealth Class, 1995"
(1998: 140).
9. Wolff does not use this top row which is added in Table 8.6 for greater clarity.
10. Wolff (1996).
11. Mishel and Frankel (1991: 155).
12. This table is a modification of Table 14 from Wolff (2004) in which he refers to his footnote to Table
7 which gives the details on the racial/ethnic categories as follows:
Households are divided into four racial/ethnic groups: (I) non-Hispanic whites; (ii) non-Hispanic
blacks; (iii) Hispanics; and (iv) American Indians, Asians, and others. For 1995, 1998, and 2001, the
classification scheme does not explicitly indicate non-Hispanic whites and non-Hispanic blacks for
the first two categories so that some Hispanics may have classified themselves as either whites or
13. Mulberg (1995:160).
14. Lenski (1966).
15. Heilbroner and Milberg (1998).
16. Of course, the planners can also make a bad plan and thus get the whole thing wrong. This is especially
likely when the command economy exists within a world market where bad decisions can destroy a business.
17. Wolff (1998).
18. The size of a company is still important as we make the transition to the information society. However,
it is not as important now as it was during the industrial era. Today, a small company may be more flexible,

and, thus, better able to compete in some markets than many large companies. However, large companies
that organize themselves for greater flexibility may maintain their competitive advantage through the greater
resources that they command.
19. Kuttner (1998).
20. Carroll (1998).
21. The discussion that follows in this chapter of forms of ownership rights is not typical of the literature in
sociology and economics. Just as the general public, most professionals combine types of economies with
forms of ownership and speak of each combination as a single unitary thing.
22. Historically capitalism has been much more than just the right to privately own the means of production.
As Max Weber has pointed out, there were a number of factors necessary for the development of the political
economy that replaced the way things were done in the agrarian societies. It would not be helpful to lump
all of these things together and call them capitalism today. This is because some of these factors are found
to be important to socialism as it is now practiced. For example, rational approaches to production are very
important under socialist forms of ownership as well as private ownership. Furthermore, socialist forms of
ownership may produce for markets and all socialist forms of ownership must make their exchanges in the
context of a world market. Typical of the various definitions of capitalism today is that of Peter Saunders.
These three factors together--private ownership of property, production for profit, and a system of
exchanges based upon market pricesadd up to a working definition of what capitalism is and how it differs
from other systems such as feudalism and socialism (Saunders, 1995: 9). This, however, is a definition of
the free enterprise system. In contrast to this definition, government-owned or partially owned enterprises
such as in China or Sweden produce for profit and for a market. Because of the government ownership, these
forms of ownership, production, and exchange are significantly different from privately owned enterprises.
However, in some cases the only difference is in what is done with the profit, if any, and why. It would not
be helpful to say that capitalism has taken over the world and that socialist forms of production are really
no longer distinct. It might be better to say that early capitalism developed with the emergence of markets
and that socialism was a reaction to some of the excesses of such political economies.
In any definition of capitalism, it is still necessary to distinguish it from other forms of private
ownership and production used in the past. This would include small private farms in the eighteenth-century
American frontier. Here was private ownership, but production was for self use not for a market. Today,
of course, markets for goods and services as well as for finance (capital) and labor are omnipresent.
Producers, whether as capitalists or socialists, may produce for profit in markets using wage labor. In a sense
then the factors that came together, such as laws supporting contracts and pools of laborers free to work for
a wage, that we speak of as early capitalism have won the day. They are so omnipresent that the alternative
to capitalism, that is, socialism, has only the factor of ownership to distinguish it today. The exception to
this is command socialism and it must still try and function in a world market --a nearly impossible task.
Therefore, in the present work the distinction between capitalism and socialism shall be nothing more than
private versus public ownership of the means of production.
23. Private ownership is only one dimension of capitalism, although it may be the most important dimension
today. Historically, another dimension of capitalism was even more important. This was the belief that
private property could not only be seen as wealth but as a resource to invest so as to produce even more
wealth. This revolutionary concept was the essence of capitalism in its earliest form. However, today even
socialists would use their control of property to make investments that would eventually produce even more
24. The overall viewpoint of Marx and Engels was presented in its simplest form in Marx and Engels
(1948/first published 1848).

25. This is the free rider problem which is also a problem in dealing with the environment under
capitalism/market. It must also be noted that the problems with the Oneida Community were not
fundamentally economic. To go into the history of these other problems is not important here. However,
the community was actually quite successful economically. Yet, this success was in the marketplace of the
larger society. That is, the community was not providing for all its needs itself. It rather ran a number of
successful businesses in addition to fulfilling many of its own needs. What made its brand of communism
unusual was that the jealousies that existed within the community seemed largely unconnected to economic
production. This did not seem to be a case of some members working harder than others. Indeed, most of
the residents seemed to look upon what we would call work as simply part of their social activities. They
seemed to emphasize doing things together rather than jobs that needed to get done. Signing up for different
work groups and single work events called bees was enjoyable since being a part of the group and working
together was always the central focus of these activities. This would be as close to a workable form as
communist production could likely get. However, doing this on a national level with the great diversity of
work that must be done today would be far more difficult. In other words, the work of the Oneida
Community was more like what would be done within a company or business today. Thus, it was one of the
best examples of communism, but even then not within a society but rather a small community working
within a capitalist/market system. See Kephart (1976: Chapter Two).
26. The Soviets headed in the same direction. They had long been dependent on private gardens in which
farmers and workers were allowed to produce and market their own vegetables after their work for the state-
run farm or factory was done. These gardens were so successful that the Russian economy, indeed the
economy of the U.S.S.R. as a whole could not have done without them. Until Gorbachev, this proved to be
of considerable embarrassment to these socialist governments. Private services and industrial businesses
have multiplied greatly since the fall of the former U.S.S.R.
27. Recent debates over the value of market/socialism include Miller (1989) who suggests the feasibility of
such an arrangement and Wood (1995) and McNally (1993) who argue against it.
28. Bardhan and Roemer (1993); Nuti (1992); Schweickart (1993).
29. Bardhan and Roemer (1993: 7) are referring here to the proposals of Bardhan, Drze, Fleurbaey, Roemer,
and Weisskopf.
30. Meidner (1978).
31. Sandberg, et al. (1992).
32. Maccoby (1991: 301).
33. For the suggestion to directly tax wealth in the U.S., as is done in some European societies, see Wolff
34. A few producers have been experimenting with waste treatment facilities that would not only be very
effective in eliminating the lagoon solution to waste disposal but would be very economical as well.
However, overall the lagoon problem looms before us for some time to come.
35. There are many other examples of big property trumping small property. For example, look at the power
of the coal companies in the Appalachians. Here we have home owners lives put at risk and property values
severely diminished by overloaded coal trucks, overflowing slurry ponds, and even the flooding and other
problems of mountain top removal.
36. The unanimous Declaration of the thirteen united States of America, July 4, 1776 (beginning of the
second paragraph)