The American "Income Revolution"
Kolko, Gabriel
Few claims concerning the direction of the American economy have been more important to social and political theory than the assertion that income has been radically redistributed. The...
...Third, economic power, especially when accompanied by the first two factors, often controls political institutions and public media...
...The father is allowed one heavy wool suit every two years and one light wool suit every three years...
...29 In 1941 it required an aver " age of $1,367 to meet this level, in 1947 an average of $3,300, an average of $3,717 in 1950, and in 1951 an average of $4,166...
...Incentives," Harvard Business Review, Nov.-Dec...
...In 1929 undistributed profits constituted 3.2 per cent of the private national income...
...By measuring changes in these tangibles, one is better able to understand the full significance of income distribution changes related to the problem of "who owns what" in America beyond annual income receipts...
...Capital gains, which go overwhelmingly to those above the $10,000 a year income brackets, are probably the most important scheme now used for avoiding taxes...
...For individuals it is 50 per cent of the BLS level for four...
...21 Butters, p. 378 and p. 382...
...24 Federal Reserve Bulletin, September 1952, p. 1001, and June 1955, p. 622...
...This is partly because almost all of us are better off than we were, and therefore aren't so bitter against those who are still better off...
...83 Federal Reserve Bulletin, June 1956, p. 567, August 1956, p. 820...
...These figures suggest an increasing concentration of stockholding at the highest levels...
...Concomitant to the declining economic position of an important sector of the clerical and sales workers is the growth of the entire group between 1940 and 1954 at a rate over twice as fast as that of blue-collar labor...
...Although no systematic comparative studies of stock ownership and concentration have been made in recent years, accurate miscellaneous data is available for the years 1927-37 and the post-World War II period...
...Despite the excessive conformity of the corporate bureaucrat, his being the leader of "other direction" justifies the institutional arrangement which he controls and which in turn has made it possible for our society to be evolving out of an age of "production" into an age of "consumption...
...30 These and subsequent figures were obtained by determining the percentages of each family below the adjusted maintenance level and calculating the total proportion of that family size's percentage of national consumer units...
...This rise is an important fact for any serious discussion of the national economy...
...The same TNEC study reveals that in 1937-39, 4.5 per cent of those owning preferred stock held 54.8 per cent of that type stock22 The Brookings study indicates that in 1951 the top 1.1 per cent of the preferred stockholders held 46 per cent of the preferred stock,23 while the lowest 82 per cent of the holders owned 20 per cent of the preferred stock...
...Granville Hicks, who, despite his literary background, documents his assertions on the matter as well as most trained social scientists, has summarized the general consensus on the topic...
...In 1935-36 income-in-kind in the form of food among farmers amounted to 50 per cent of the money income of those earning less than $500, 37 per cent of the income of those earning from $500 to $1,000, and 29 per cent of the income of those earning from $1,000 to $1,500...
...The same patterns exist for durable goods purchases of all sorts...
...The Role of Savings Power in the hand of the economic elite, in addition to money income, can exist in a number of forms...
...Table 6 Number of Persons and Percentage of National Population Owning From 65 to Number of Persons and Percentage of 71 Percent of National Population Receiving One-Half Marketable of Cash Dividends 20 Stockholdings21 1927 1929 1931 1933 1935 1937 1949 Number of 38 51 59 45 47 61 50-100 Persons (in thousands) % of National Population0.032 0.042 0.048 0.036 0.037 0.047 ca...
...p. 95 and p. 100...
...Using a different set of data found in the Federal Reserve Bulletin, June 1948, P. 651 and p. 656, 48.0 per cent of the consumer units are below the BLS maintenance level and 31.0 per cent were on or below the emergency level...
...Table 5: Proportion of Net Saving Accounted for by Each Tenth of the Nation's Spending Units When Ranked by Size of Income 17 Per cent of total accounted for by each tenth: 1929 1941 1942 1946 1948 1949 1950 Highest tenth 86 73 46 63 78 105 73 2nd 12 15 i8 lb 19 26 20 3rd 7 6 13 14 15 13 1I 4th 5 5 8 7 6 8 10 5th 3 5 5 4 6 1 4 6th I 3 4 1 2 * —1 7th * I 3 2 —I —4 8th 0 —1 3 1 —3 —8 9th —1 —3 2 —3 —5 —6 —2 Lowest tenth —13 —4 —2 —5 —17 —35 —16 * Less than 0.05% Except for 1945, when the backlog of wartime saving reached its peak, the upper tenth of the income earners has managed consistently to control the vast bulk of net savings...
...The two most notable achieve ments of the twentieth-century corporations have been their ability to concentrate economic power in themselves and their ability to increase production and distribution," writes Adolf Berle, Jr., in an another example of this line of thought...
...Income inequality is partly reflected in the preceding charts, but the distribution of economic power can be understood fully only when tangibles such as net savings distribution, liquid assets, and stock ownership are correlated to specific groups within the income distribution spectrum...
...The importance of "income-in-kind"—home grown food, free housing, relief, company expense accounts, etc.—in the distribution of income has only recently become clear...
...Capital gains, or income from the sale of stocks, property, etc., held more than six months, are taxed at a maximum rate of 26 per cent as compared to the top theoretical income tax rate of 92 per cent...
...Preliminary data for 1955 indicates that since 1950 , the number of consumer units earning less than the BLS level has dropped to around 48 per cent...
...36 Nevertheless, the value of autos corresponds directly to income, so that in early 1955 less than one-half of one per cent of the consumer units earning less than $2000 who owned cars had models worth $2500 or more...
...There is no justification for this state of affairs in the writings of social theorists on income distribution...
...It is partly because we know that the rich are heavily taxed and that their powers are curbed in many ways...
...Federal Reserve Bulletin, July 1956, p. 703 ff...
...Undis tributed profits that are divided later are taxed at the capital gains rates, and sometimes they are free of taxes altogether...
...This reflects, according to Riesman, both the equalitarian views of the "peer group" which sets criteria for consumption behavior, and the economic ability of the "overprivileged twothirds" to purchase most of the symbols of economic and social status in the original or in virtually equivalent imitations...
...For a grasp of the relative position of all income groups, the following table is crucial...
...Contrary to common belief, the dollar value of income-in-kind in rural areas tends to increase with the money income position of the recipient, so that in 1941, for example, farm families having a net money income of less than $500 also received an average of $417 in incomeinkind, while those in the $3,000 and above class averaged $719 in income-in-kind...
...Riesman, for example, on the assumption that the separation has occurred, implies that the removal of managers from stockholding has meant they are generally above mundane considerations in their relations to labor and society, and are therefore leaders in the movement towards an "other-directed" culture...
...In 1955 the figure had dropped to 20 per cent of the spending units, though the dollar was worth 15 per cent less than in 1947-49...
...Reliable data for after tax income distribution before 1947 does not exist, but since this equalitarian situation is said to be a result of government and trade union pressures over the past 20 years, it should be reflected in recent figures...
...Despite the economists' general lack of interest in over-all income distribution patterns, enough data can be gleaned from government sources and existing monographs to suggest that the present social theorists are sorely misinformed on the facts of income distribution...
...But it is also true that the bulk of instalment buyers can be found among the $4,000 to $10,000 income groups—those already over the decency level or only slightly below it...
...The 3-4 persons families were calculated at 100 per cent of the WPA level ($1,250 for the sake of calculation) , but the 5-6 persons families at only 120 per cent and the seven or more persons families at 140 per cent...
...The following table indicates the proportion of income received by each tenth of the spending units after federal income taxes...
...As one study commented, "Some of the largest personal and family fortunes in this country have been built up from accretions to economic power most of which would never appear as a part of the owner's income in any existing source of income data...
...Additional studies made by the Survey Research Center indicate that these holding groups are almost never found among clerical, skilled, semi-skilled, unskilled, farm workers, and all lower and middle income groups...
...Positive saving comprises the saving of all family units with money incomes in excess of expenditures, negative saving comprises the dissaving of all family units with expenditures in excess of money incomes, and net saving (plus minus) is positive saving less negative saving for all family units combined...
...63-64, and Statistics of Income for 1950, Part I, Washington, D. C., 1954, pp...
...Kuznets' study ignores the factor of expense account living and the tendency of upper income groups to under-report taxable dividends, rent and interest by as much as 50 per cent...
...Consonant with a mechanistic view of progress, Riesman implies that radicalism in social and political problems is characteristic of "inner-directed moralizing," and is in large part still a reactionary stage in national character development...
...As in laissez-faire or Marxism, Riesman sees justice impersonally evolving from bureaucracy, changes in population development, and mass consumption...
...12 A large part of the tax rate has been avoided by the manipulation of capital gains income by the economic elite, and through other devices to be discussed later...
...Since 1935 there have been a number of reliable government studies of what constitutes what has alternately been called the "American," "maintenance," and "minimum health and decency" standard of living...
...All subsequent calculations for seven or more persons families are 140 per cent of the BLS level, giving a somewhat conservative bias to these figures...
...Nevertheless, their broad conclusions can be used to accurately suggest the direction recent stock concentration trends have been taking...
...Provision would be made for future education of the children and for economic security through saving...
...Housewives" composed 32.8 per cent of the stockholders, but their husbands' occupations, especially since the Security and Exchange Act does not prevent the use of relatives by executives for many speculatory or manipulative schemes, is obviously vital information...
...The declining age at which marriage now takes place has put more families in lower income brackets during the period workers are below their peak earning capacity...
...3s Talcott Parsons, "A Revised Analytical Approach to the Theory of Social Stratification," in Reinhard Bendix and Seymour Lipset, eds., Class, Status, and Power, Glencoe, Ill., 1953, p. 122...
...You can't compete for executive talent today without a gimmick," remarked David Sarnoff, chairman of Radio Corporation of America, several years ago...
...Maintenance and Emergency Income Levels...
...With this new age has come the "overprivileged two-thirds," a group whose consumption values are increasingly determined by "peer group" criteria which tend to minimize the use of material goods as pretentious displays of economic and social status...
...In 1949, according to the Survey Research Center of the University of Michigan, there were about 4,500,000 shareholders in the United States...
...20 Temporary National Economic Committee, The Distribution of Ownership in the 200 Largest Nonfinancial Corporations, Monograph 29, Washington, D. C., p. 18...
...9 Statistical Abstract, 1952, chart 3I4 for definition and data...
...6.6 Totals: 48.8 28.3 Table 8: Percentage of National Consumer Units Earning Less than the B.L.S...
...nor can it be said that America's capacity to consume has been exploited anywhere near its full potential...
...97-98...
...They are the only reliable figures for this period available...
...There were no savings except for a small insurance policy...
...His data, however, at no point implies an income redistribution throughout the population, and Kuznets can be absolved of responsibility for the extravagance of his interpreters...
...7 Income After Taxation It has become something of a stock argument that despite the great inequality of money income in the United States, the impact of taxation has compensated for the disparities...
...Table 4: Percentage of Money Income Received by Top 5 Per Cent of Consumer Units 10 1944 1946 1950 1951 1953 Before Taxes 20.7 21.3 21.4 20.7 20.7 After Federal Taxes 19.2 18.4 18.2 *not available It is obvious from the preceding figures that taxation has only a minor impact on the relative shares of the economic elite, and that this is so can be easily understood from the tremendous disparity between actual tax rates on the highest incomes, and the legal rates which overawe most of the commentators on income distribution...
...the nonreporting rate tended to be higher in blocks with higher rent levels and with larger proportions of families at upper income levels, ranging from about 1 per cent at the under $1,000 level to 35 per cent at the $10,000 and over level...
...Since a large part of the income-in-kind going to lower income groups in the urban areas was in the form of relief and charity, it can be assumed it has become negligible with full employment...
...Arrangements under which housing, entertainment, and vacation expenditures of executives are carried as business costs and overgenerous expense accounts are some of the techniques used...
...The Upper Classes Although there are fewer very poor and, relatively speaking, fewer very rich than there were twenty-five or fifty years ago, there are stilt grievous inequalities in this country, but they don't seem so important as they once did...
...But in place of such "oldfashioned" causes as unemployment and low wages-causes that are diminishing in importance but still of real significance in many industrieshave come "new fashioned" causes which provide ample justification, for skepticism in regard to eulogists of the status quo...
...Yet 18 per cent of the car owners with an annual income of more than $7500 owned such models...
...Popular historians, such as Eric Goldman and Frederick Lewis Allen, have analyzed the functional and human value of the New Deal as a solution to economic problems at least partially on the basis of their belief that it redistributed income...
...And it was in 1941 that the economic elite began to search for new ways to maintain their incomes and standards of living while avoiding the highest tax rates...
...It is, after all, the distribution of the relative shares of income that has occupied the attention of most theorists...
...The one change of importance is the allowance for a car for 74 per cent of the families at this income level, save for Chicago, Philadelphia, and New York, where only 40 per cent are allowed cars...
...The TNEC did not prepare similar data for its study of 1,710 corporations in monograph 30...
...Data from N.R.C, Consumer Income...
...About 80 per cent of the individuals collecting relief, or 3.0 per cent of the consumer units, are assumed to be below the WPA level for one person, since 93.1 per cent had an income or less than $780...
...319-320...
...In their discussion of the topic, the sociologists Paul K. Hatt and Nelson N. Foote, for example, suggest that tastes and ability to consume have been "massified" in the last decade or so, because "In recent years the range of income distribution has been pulled in at one end through subsidization of consumption and the establishment of minima...
...The increased divorce rate, for example, has placed a larger number of traditionally lower paid women in the position of chief family earner, so that in 1949 thirty per cent of the lowest fifth of the income earners, as opposed to twenty per cent in 1939, were women living alone or as family heads...
...9.1 ca...
...Indeed, the average income of the upper quarter of 58 of the occupations was insufficient to meet this standard, and the average incomes of 42 occupations fell below 70 per cent of the BLS level for four...
...Indeed, the slight shifts in after-tax distribution shown in Table 2 are of small importance, since they ignore the fact that all income groups show a net reduction in dollar income after taxes and that the vast bulk of the tax revenue is spent on armaments rather than welfare for lower income groups...
...1, Bulletin 694, Washington, D. C., 1942, pp...
...Relatively low unemployment over the past 15 years has most assuredly made for a significant change in the causes of poverty...
...First, it can take the shape of control of investment funds and available savings, which can be significant factors in the creation and/or prevention of economic crises...
...As the information in footnote 33 indicates, the results are reasonably close approximations of the overall situation...
...These trends suggest that a very detailed investigation of which occupational groups own what percentages of all stock is needed, and that the thesis of the separation of management from stockholding, with all its theoretical implications, is now in need of serious retesting...
...19.4 per cent of "operating supervisory officials" consisting of middle-level managers, department heads, etc., constituted 9.6 per cent of the total stockholders...
...37 Granville Hicks, "How We Live in America," Commentary, Dec...
...Since the government studies are usually a synthesis of data on what families do spend with a scientific evaluation of what they need, there is general agreement that This budget does not approach the content of what may be considered a satisfactory American Standard of living, nor does its cost measure what families in this country would have to spend to secure 'the abundant life: Such a standard would include an automobile, better housing and equipment, a more varied diet, and preventive medical care...
...Nevertheless, while many Americans earn incomes which would nominally place them below the minimum decency line, the tripling of the instalment debt since 1948 has made possible greater consumption for many who would otherwise be unable to enjoy Business Week's prosperity...
...For in almost any given year the average dollar income of the upper tenth of the income earners will be twice as high as the average income of the next highest income tenth, and about 25 to 30 times higher than the average income of the lowest income tenth...
...From 1940 to 1954 the percentage of women 14 years and up who were divorced increased from 1.6 per cent to 2.3 per cent...
...If we add it all up, we can only conclude that this is a prosperous society, with a larger and larger proportion of the people sharing the prosperity...
...In 1930, 54 per cent of the males 65 years or older were in the labor force, as compared to about 41 per cent in 1950...
...According to Allen, " . .. through a combination of patchwork revisions of the system—tax laws, minimum wage laws, subsidies and guarantees and regulations of various sorts, plus labor union pressures and new management attitudes—we had brought about a virtually automatic redistribution of income from the well-to-do to the less-well-to-do...
...Although they earn more than the $2,000 erroneously assumed by Congressional committees to be the sole qualification for a low standard of living, many do not, or would not be able to maintain the ascetic BLS level for four...
...For example, where a maintenance level was $1661, it was assumed that three-tenths of the units earning between $1500 and $2000 were below the maintenance level...
...12, 1951, p. 14...
...5, p. 89...
...6 National Bureau of Economic Research, Studies in Income and Wealth, New York, 1951, vol...
...The extent to which this belief, has permeated social thought is especially surprising in view of the fact that few of those who assert it have bothered to supply empirical documentation...
...5I After all is said and done, therefore, abundance and full consumption has been denied a vast segment, if not the majority, of the nation's population...
...Implicit in this notion is that the mechanics of progress and social change are impersonally involved with, and being settled by, a benevolent economic arrangement, and that social reform and individual participation in social action is irrelevant, if not damaging, in such a situation...
...In closely held corporations undistributed profits can often be realized at some later date when tax conditions are expected to be more favorable...
...According to the WPA study it is 70 per cent of the maintenance budget, and those on or below this level are in poverty and exposed to serious health hazards...
...to maintain a level of adequate Iiving according to prewar standards prevailing in the large cities of the United States...
...It is only above this level...
...In 1932, under Herbert Hoover, the legal rate on a $1 million income was 54 per cent, although in actuality the effective rate was 47 per cent...
...As a percentage of the total number of stockholders in 1949, these figures would be from one to two per cent...
...13, p. 518...
...To Riesman, the development of a new personality type—the other-directed individual—is concomitant with the shift in the economy from an age of "production" to an age of "consumption...
...In the following section I will discuss the relative shift of consumer units receiving incomes below the level of "health and decency" set by Works Project Administration or Bureau of Labor Statistics since 1935-36...
...While the figures do not take credit spending into account, this factor will be discussed later...
...The car is expected to be from six to nine years old, and no allowance is made for the purchase of a new car more than once every 12 to 18 years...
...The difference —undistributed profits—will be discussed later in this section...
...All calculations are adjusted for family size according to BLS standards...
...Minor shifts of consumption appear in the post-war budgets, but in its essentials the quality of living is the same...
...Few claims concerning the direction of the American economy have been more important to social and political theory than the assertion that income has been radically redistributed...
...Whether it be profit-sharing trust or a contingent deferred compensation contract, or something else with a fancy name, the basic aim of each plan is generally about the same—to put off the executives' income until after retirement, when they are expected to be in a lower tax bracket.14 The income is placed in a trust which accumulates tax free interest or dividends...
...As the recent study of the Butters group shows, the use of such devices is restricted almost wholly to the rich...
...Beyond its economic importance, however, the auto has become the hallmark of economic status and prestige rank idealized in the mass media and lived by the economic elite...
...This fact will become even more apparent in the discussion on after-tax distribution, income-in-kind, savings, and tangible holdings of economic wealth...
...This is especially true among "certain categories of individuals with large incomes, notably owners of family businesses, [who] are able to charge off substantial amounts of personal consumption expenditures as business expenses and hence to exclude them in computing their `adjusted gross income' for tax purposes.4 "Since the beginning of World War II," writes George " Garvy of the Federal Reserve Board, "high personal income taxes, combined with high corporate profit taxes, have created a situation where compensation in kind became more profitable to the corporate executive and key employee...
...34 Data taken from Herman P. Miller, Income of the American People, New York, 1955, pp...
...In this study I will assume 70 per cent of a maintenance budget as the emergency level...
...But the juggling of statistics, when theorists deign to resort to them, is not sufficient to change the reality with which the figures are said to correspond...
...at the other through progressive taxation...
...17 Data for 1929 from Maurice Levin, et al, America's Capacity to Consume, The Brookings Institution, 1934, p.96...
...Less important devices include tax exempt interest on state and local bonds, tax free interest on savings invested through insurance companies, and stock options for executives which allow them to purchase their corporation's stock below the market price and have the profits taxed at capital gains rates...
...Even in 1955 only 29 per cent of the 11 per cent of all consumer units earning less than $1,000 owned autos, while 94 per cent of the top 14 per cent of the consumer units—those earning $7,500 plus—owned cars...
...In this section I will deal with aspects of the first two forms...
...With the advent of serious taxation in 1941 they rose to 5.3 per cent and in 1950 were 6.3 per cent of the private national money income...
...Should an extended recession or unemployment persuade a significant percentage to return to conservative buying habits more in line with their incomes, the cumulative impact on the economy would have enormous consequences on production and employment...
...6 George Garvy, "Functional and Size Distributions of Income and Their Meaning," American Economic Review, May 1954., p. 243...
...8 Bureau of Labor Statistics, Spending and Saving of the Nation's Families in War...
...But the lowest income workers today are generally farmers, unskilled, service, and semi-skilled workers, with a generous portion of skilled and clerical workers who approach but do not reach the BLS level...
...It is not, however, the number of shareholders but the amount concentrated in each group that indicates the important trends in shareholding...
...They include all single individuals receiving less than $500 and three-fifths of those earning between $500 and $750, assuming that this covers those making between $500 and the WPA level of $675 for one person...
...The remarkable failure of the New and Fair Deals to significantly dent percentages of consumer units earning less than the maintenance level, much less the emergency level, in the post-war period is in itself in fundamental conflict with the "big change" thesis...
...15 Adolf A. Berle, Jr., The 20th Century Capitalist Revolution, New York, 1954, p. 60...
...Obviously, whether intended or otherwise, the present current in social thought which is dependent on the mythology of an effected radical income redistribution is a block to the formation of a rational institutionaI analysis of American society today...
...12 Wall Street Journal, June 30, 1954, p. 1. 13 See Kuznets, Shares, 1953, p. 668-677...
...Given fundamentally the same income structure as existed either fifteen or fifty years ago, we have seen that at any given time a capitalist economic structure will create a grossly unequal income stratification, and with it the social and prestige stratification which unequal access to economic status symbols brings...
...Only three per cent of the car owners in the $5000-7500 income category owned cars valued at $2500 or more...
...The TNEC study of the share distribution of 1,710 corporations in 1937-39 indicates that the top 4.0 per cent of the stockholders of common shares held 64.9 per cent of the stock, while the lowest 56.2 per cent of the shareholders held 4.9 per cent of the common stock...
...The lethargy of the New Deal towards the rich was changed by the necessity of winning a war, but the "transformation" which ensued hardly affected, as I shall later illustrate, the economic power of the upper five per cent...
...Data for 1935-36 from National Resources Committee, Consumer Income in the United States, Washington, D. C., 1938, p. 22 and P. 95...
...The Brookings Institution set the figure of 6,490,000 shareholders for 1952...
...When the executive retires his income from the trust is taxed at the much lower capital gains rate...
...But about twice as many blue collar workers, or 60 per cent, held some instalment debts in 1955 as compared to 1935...
...GRANVILLE HICKS From the point of view of access to economic status symbols, the position of the upper tenth of the nation's income earners should be the dominant concern of students of social inequality in America...
...many very high status people drive Fords and Chevrolets, (and some not-sohigh drive Cadillacs...
...Distribution justified concentration, just as other-direction rationalizes private bureaucracy...
...I Nelson N. Foote and Paul K. Hatt, "Social Mobility and Economic Advancement," American Economic Review, May 1953, pp...
...According to the Butters study, 65 to 70 per cent of the total marketable stock held in 1949 was controlled by groups with a total net worth of at least $250,000—or a very small fraction of one per cent of the population...
...time, Bulletin 723, Washington, D.C., 1942, p. 5. 4 J. Keith Butters, et al, Effects of Taxation—Investment by Individuals, Boston, 1953, p. 81...
...Those living below this level, as a later discussion on auto consumption will indicate, have a very inadequate access to "massified" status symbols...
...14 Arch Patton, "Executive Compensation: Tax Gimmicks vs...
...Recent assertions on the purported tendency towards income equalization have concentrated on the position of the upper five per cent of the income earners and the decline of the number of annual tax returns at very high figures$ 100,000 and up...
...While no precise values can be given to such incomeinkind, it should be remembered as a crucial factor in income distribution analysis...
...Statistics indicate that the concentration of large families below the maintenance level has remained constant since the WPA study...
...Currency is excluded...
...27 Bureau of Labor Statistics, Workers' Budgets in the United States: City Families and Single Persons, 1946 and 1947, Bulletin 927, Washington, D. C., 1948, p. 2. 28 Margaret Loomis Stecker, Inter-City Differences in Costs of Living in March 1935, 59 Cities, Research monograph 12, Division of Social Research, Works Project Administration, Washington, D. C., 1937...
...Since, as I will later show, corporate dividends go overwhelmingly to the economic elite, undistributed profits represent economic power held by groups within the economic elite which, if distributed, would go almost exclusively to the upper five per cent...
...In the same year, non-farm families earning less than $500 received $163 in income-in-kind, while those in the $3,000 to $5,000 income class averaged $213 and those earning more than $5,000 averaged $358.3 Several studies corroborate this general pattern...
...The mother does all cleaning, cooking, and laundry, and the family may eat cheaper cuts of veal, pork, and beef "several times" a week, though on Sundays and holidays chicken or roasts may be had...
...Under the 1952 tax schedule it is possible to save as much as 70 per cent on annual taxes of the income of property placed in a trust...
...11 All statistics from Bureau of Internal Revenue, Statistics of Income for 1939, Part I, pp...
...And this, in turn, suggests that most of the contemporary sociological and political concepts based on an income redistribution are more the product of a self-satisfied decade than the result of serious analysis...
...13 Yet corporate profits have increased since World War II and, as I shall later show, the ownership of stock is at least as concentrated today as it was in the 1930's...
...The fifth-highest tenth has remained relatively stable, and in no category can one find what even remotely approximates a radical shift...
...In 1938, though the legal tax on a $1 million income had risen to 72 per cent, the effective rate had fallen to only 44 per cent...
...Any study of the percentage of spending units earning incomes below the "maintenance" level must take into account a large number of important variables, the most important of which is family size...
...25 Frederick Lewis Allen, The Big Change, New York, 1952, P. 213...
...Data from NRC, Consumer Incomes...
...Among the spending units earning less than $3,000 in 1955, only a minority were obligated to any instalment debts in early 1956, and the bulk of these were for relatively small amounts...
...7 Simon Kuznets, Shares of Upper Income Groups in Income and Savings, New York, 1953, p. xxx...
...In Riesman's The Lonely Crowd, for example, one finds notions strikingly parallel to the Marxist concept of the "progressive" stage of capitalism and an implicitly positive judgment on the necessary, and hence desirable, stage of our society in its development towards an "autonomous" culture...
...Second, it can take the form of influence over the corporate and business structure, either by the control of stock holdings or managerial positions...
...that people have enough to begin to think largely in terms of the quality of their living.27 In 1935 the WPA made what was probably the first thorough survey of the cost of a maintenance budget for a family of four 2 8 Surveying 59 cities, they included in their standard a four or five room house or apartment with private toilet facilities in fair repair, gas, electricity, a small radio, a daily paper, a movie once a week, minimum medical care, clothing and furniture, no car, an adequate minimum cost diet, and slight incidentals...
...16 The following table indicates the extent to which net savings has been distributed among each tenth of the nation's spending units since 1929...
...The bulk of the new cars have always been purchased by members of the top income groups, most of the lower income groups restricting themselves by necessity to used autos...
...366-367...
...The WPA study and a subsequent National Resources Committee investigation form the basis of the post-war Bureau of Labor Statistics family budgets for cities, which are set at a level designed...
...The value of the stock is about the same, and I assume that dividends are also about 65-71 per cent of the total...
...Government population projections indicate that while the total population will by 1975 have grown about 180 per cent over the 1900 level, the 65 years and over population will increase by about 572 per cent —from 4.1 per cent of the total population in 1900 to 8.4 per cent in 1954, to about 10 per cent in 1975...
...As a result, there is no longer an important area in our democracy where radical reform or personal participation is possible...
...26 Bureau of Labor Statistics, Handbook of Labor Statistics, 1941 ed., vol...
...Full employment, while it has significantly decreased the bulk of poverty caused by unemployment, has not prevented inflation from forcing many wage and salary workers into low income categories...
...Subsequent data from Federal Reserve Bulletin, August 1948, p. 923, and September 1951, p. 1067...
...By 1941 it crept to 59 per cent, and in 1955 about 70 per cent of all consumer units owned some type of car...
...32 No breakdown of family size is available, though it is safe to assume the families were weighted towards large membership...
...31 The figures include relief and non-relief income...
...There is no debt according to this theoretical level, savings only in the form of a small insurance policy, and presumably no fear...
...This fact, of course, has been known from all investigations made of the distribution of saving.19 Stock ownership reflects the ability of economic groups to invest, and investment roughly reflects the margin of surplus income concentrated among various economic groups...
...The children may have toys in "moderation," the family has no phone but may make three pay calls a week, it may write one letter a week, and every three or four years, depending on the distance travelled and time involved, the family may take a vacation...
...The General Pattern Most of the commentators asserting that a radical redistribution of income has taken place over the past 20 years focus their attention on the relative positions of the upper one per cent and the upper five per cent of the income earners...
...Of greater importance is the unanticipated result of the social security system in placing larger numbers of aging workers in the lowest income brackets...
...Equality is a function of similar modes of Iife styles based on relative equality of income and consumption, so that the thesis of "massification" of status symbols is by necessity based on a concomitant change in income distribution...
...A larger percentage among these two groups owned stock than any other occupational category, and save for housewives, "operating supervisory officials" were the largest single occupational group among stockholders...
...22 Temporary National Economic Committee, Survey of Shareholdings in 1,710 Corporations with Securities Listed on a National Securities Exchange, Monograph 30, Washington, D. C., 1941...
...In the following section I give data on changes in stockholding concentration, mainly as an example of the extent to which the economic elite controls economic assets, and secondly to suggest necessary revisions in the theory about a purported separation between managers and stockholders which over the past two decades has assumed such an important part in discussions on power in America...
...As a result, Many companies, large and small, have adopted one or more of what are euphemistically called "tax deferral plans...
...Between the two extremes was a pattern reflecting income inequalities.35 But erudite sociologists, such as Talcott Parsons, have written that economic status symbols have become "massified," and that...
...The Sfandard of Living...
...In 1941 income-in-kind averaged about 10 per cent of the money income of those earning below $1,500 in urban areas...
...A factor of exceptional importance in measuring the economic power of the economic elite is undistributed profits...
...In addition, trusts enable the rich to split family property into smaller units so that each income is taxed at lower tax rates...
...Figures on savings and stockholding suggest the extent to which minor fluctuations in income distribution will affect the position of the upper income groups in nonmoneyincome economic power...
...The facts on income distribution suggest that the claim for an income redistribution over the past 40 years has yet to be proven...
...Certainly taxation of the rich would have to parallel the extent it took in Great Britain from 1945 to 1951 for any measure of economic equality to be introduced...
...Thus, as the retirement age is lowered for both humane and economically practicable reasons, larger numbers of the retired, particularly those who have not been able to accumulate any substantial savings, can expect a life of quiet desperation along with their long overdue leisure...
...Figures for 1941 through 1951 are taken from the Federal Reserve Bulletin, August 1948, p. 923, and September 1951, p. 1067...
...These and other desirable improvements above a maintenance level of living would require annual disbursements considerably in excess of the money values of the budget used in this investigation 26 In terms of social status and economic security, this level of living represents essentially a breaking point in our society...
...Since 1947 the top tenth of the nation's spending units have owned from 36 to 44 per cent of the liquid assets, while the lowest tenth have owned from three to five per cent...
...The information provided in the Survey of Consumer Finance data on ownership by occupation suggests a heavier concentration of major stockholding among the managerial groups today than among any others...
...The figure 50,000 is given by the Survey Research Center and 100,000 is the Butters estimate...
...In determining the percentage of the spending units below the maintenance level, one can ignore the income-in-kind going to the upper income groups...
...29 "City Workers Family Budget for October 1951," Monthly Labor Review, May 1952, p. 520...
...p. 2. 23 Lewis H. Kimmel, Share Ownership in the United States, The Brookings Institution, Washington, D. C., 1952, p. 43...
...33 All figures for 1947 from Statistical Abstract, 1949, charts 31 and 333...
...16 National Bureau of Economic Research, Studies in Income and Wealth, New York, 1943, vol...
...A quarter of the families receiving less than $2,000 a year in 1948 were headed by persons 65 years and over...
...Distinctions diminish between country and city, between rich and poor, between men and women, between old families and the children of immigrants, even—though much more is to be desired—between black and white...
...Save for an extra 32 copies of popular priced magazines and a reduction of movie attendance to once every three weeks for three members of the family and once every two weeks for the fourth member, the level of life is the same...
...This latter assertion is of little relevance, since if it Table 3: Percentage of Individual Income Received bya Top 1 % Top 5% Income before Income before capital gains, capital gains, taxes, gifts Taxable After tax taxes, gifts Taxable After tax and transfers income income income Income 1919 12.8 14.0 12.2 22.9 26.1 24.3 1933 12.1 14.4 12.6 24.6 30.8 29.3 and transfers 1937 13.0 14.1 13.0 24.1 28.5 27.4 1941 11.5 12.5 10.0 22.2 26.0 23.2 1942 10.2 10.8 7.9 19.2 22.7 19.2 1943 9.5 10.1 6.5 18.0 21.1 16.8 1944 8.7 9.1 6.7 16.8 18.9 15.9 1945 8.9 9.5 7.4 17.6 19.5 16.8 1946 9.1 9.7 7.8 18.4 20.2 17.9 1947 8.6 ** 17.6 ** 1948 8.5 ** 17.8 *not available 39 can be shown that the centralization of economic power and status symbols has not moved out of the control of a small economic elite, then the problem of the elite's relation to society remains with us despite minor shifts within the elite itself...
...0.01-0.02 By and large, the bulk of all stock is concentrated within a very small group in the economic elite, and according to available figures, has been for at least two decades...
...And since the means towards egalitarian ends are purported, in so many cases, to be dependent on a specific institutional arrangement fortuitously not too unlike that with which we live, the good society is supposed, to a significant extent, to have already been realized...
...Of perhaps equal importance is the tendency for incomes to be understated and exemptions overstated...
...10 Office of Business Economics, Income Distribution in the United States by Size, 1944-1950, Washington, D.C., 1953, p. 15, 1950-5'1-53 data from Survey of Current Business, March 1955, p. 24...
...6 All this indicates, as Simon Kuznets has stated, that present estimates of wealth in upper income groups are "...subject to a downward bias of unknown proportions...
...Statistical Abstract, 1952, p. 259...
...Conclusion Robert Merton has written that the confident error generates its own spurious confirmation, so that a myth evolves and becomes selfperpetuating...
...In addition, trends in income dis tribution must take into account the tendency of groups to underestimate their income for obvious tax reasons...
...In 1950 the family was allowed to spend a total of $80 to $90 on all types of furniture, house furnishings, electrical goods, and laundry equipment...
...Save for the 1 WPA study of 1935 budget standards, there is no recent criterion for determining what is an "emergency" level...
...Obviously, the material difference between the above values of incomein-kind is substantial, especially in urban areas...
...Lumping three and four persons families and five and six persons families together and using the NRC methods (excluding relief families) and the same criteria used in calculations for 1935-36, I find that 48.1 per cent of the consumer units received incomes below the BLS level in 1947...
...8 Statistical Abstract, 1955, chart 353...
...Yet despite the increase in tax rates for upper income groups initiated by the New Deal, the federal receipts from personal income taxes in 1929 and 1940, when the size of the national personal income was almost identical, were about the same...
...Table 1: Percentage of National (Money) Income Received by Each Tenth of Recipients, Before Taxes 2 Highest Lowest tenth 2nd 3rd 4th 5th 6th 7th 8th 9th tenth 1910 34 12 10 9 8 7 6 6 5 3 1918 34 13 10 9 8 7 7 6 4 2 1929 39 12 10 9 8 6 5 5 4 2 1937 34 14 12 10 9 7 6 4 3 1941 34 16 12 10 9 7 5 4 2 1945 29 16 13 II 9 7 6 5 3 1947 33 15 12 10 9 7 6 4 3 1950 29 15 13 II 9 8 6 5 3 1 1953 31 15 12 10 9 8 6 5 3 1955 29 16 13 II 9 8 6 4 3 1 From the above figures it can be seen that the percentage of income going to the lowest three-tenths of those earning incomes has declined over the past 40 years, while the share of the next two-tenths has remained stable...
...Of the latter group, the bottom foursevenths alone were included...
...1947 and 1950 33 Number of % of national consumer units: persons In below maintenance level below emergency level household: 1947 1950 1947 1950 1 6.0 5.8 3.9 4.9 2 10.7 12.3 8.1 8.3 3 9.6 9.7 5.7 5.4 4 9.1 9.2 4.7 4.3 5 5.7 6.3 2.8 3.6 6 3.5 3.7 2.2 2.3 7 plus 4.0 4.3 2.9 3.2 Totals: 48.6 51.3 30.3 32.0 able for the post-war period...
...The net results give conservative estimates...
...The theoretical systems built around this theme have captured the imagination of a very substantial proportion, if not the majority, of social scientists...
...Unfortunately, data correlating family size to income in rural and urban areas are not available for either the pre-war or post-war period, and only data giving combined farm and urban family income and size correlations are availTable 7: Percentage of National Consumer Units Earning Less Than the W.P.A...
...The Department of Commerce provides more data on the relative distribution among the top five per cent of the consumer units (families and unattached individuals) as opposed to Kuznets' calculations on individual income returns reporting the highest per capita income...
...In 1941 federal personal tax receipts increased by one-half over the 1940 level while personal incomes increased by about 15 per cent...
...Since World War II and the continued decline of the farm population, the importance of this disparity between farm and city income has diminished, so that occasional price differentials between goods sold in rural and city areas has become smaller, while the importance of incomein-kind as a percentage of farm income has declined substantially...
...t5 Thus, using the dispersal of holdings and the separation of stockownership from management as a rationale, it has become possible for writers such as Berle and David Lilienthal to justify monopoly in terms of the public welfare...
...Nevertheless, liquid assets holdings are far from being universal, and when they do not exist among lower income groups usually they are without savings for the inevitable "rainy day...
...The Temporary National Economic Committee estimated that there were four to six million shareholders in 1927 and about 8,500,000 in 1937-39...
...Because of the above trends, one can only agree with a leading expert on savings, Raymond Goldsmith, who in 1953 concluded...
...In addition, in early 1952 only two per cent of the managerial class was found in the group owning more than $25,000 in stock, as compared to five per cent in early 1955.24 The Brookings stock study in 1952 indicates that 44.8 per cent of the "high administrative executives," equal to 4.6 per cent of the total stockholders, held stock...
...One recent study of income data reports that...
...Since 1929 data excludes net savings for unattached individuals, concentration at the highest levels is probably slightly exaggerated...
...Though the de tailed figures are not available, it is known that almost two per cent of the national personal income in 1929 was received by the federal government in the form of personal income tax receipts and that it came almost entirely from the highest tenth of the spending units...
...18 Liquid assets consist of checking accounts, government securities, saving accounts in banks, postal savings, shares in savings and loan associations and credit unions...
...That there has been a significant change in income distribution after taxation thus remains an unproven assertion...
...As the Butters research group at Harvard concluded: "By far the most striking and significant feature of these charts is the large excess of theoretical over actual tax rates on upper income bracket individuals when these rates are computed for income inclusive of all net capital gains...
...Here, the figures show, if not increasing concentration, at least stability in the power of the economic elite...
...The degree of success we have achieved ought to offer hope to mankind so long as mankind 37 " survives...
...If we call into doubt the ability of our present economic order in achieving this egalitarian end, we challenge an institutional structure resting on mythos, interest, and inertia...
...There are additional major "new fashioned" causes of poverty...
...Calculating the significance of these factors is subject to some arbitrary estimates, but certain detailed information, especially in regard to home produced food, charity, and non-money gifts is available...
...No adequate calculations of income-in-kind going to the top income groups since 1941 is available, but since the Second World War and the subsequent introduction of higher taxation, the importance of "expense account" living for many in the upper income groups has been acknowledged by most economists...
...The majority of instalment purchases have gone into autos, and the distribution of auto ownership itself reflects the larger consumption patterns income inequality creates...
...19 Raymond W. Goldsmith, "Trends and Structural Changes in Savings in the Twentieth Century," in Walter W. Heller, et al, eds., Savings in the Modern Economy, Minneapolis, 1953., p. 151...
...There is, in addition, the factor of income-in-kind...
...None of these factors has been taken into account in the previous chart...
...Despite this, the myth of income redistribution still arises from a general agreement among most theorists as to what constitutes economic and social "good...
...So while the poor farmer may grow his own vegetables and chop wood for fuel, the businessman or corporate executive may often have his car, fuel, vacations, and meals for himself and even his family marked off as business expenses...
...In 1947, about 24 per cent of the spending units, all earning less than $5,000, held from $1 to $499 in liquid assets, and in 1952 the figure was identical...
...Subsequent figures are from Federal Reserve Bulletin, June 1956, p. 569...
...2 The figures for 1910 through 1937 are taken from the U.S...
...As a result of these and other tax-avoidance devices, there has been a shift among the economic elite away from the above $50,000 a year income categories into the $15,000-50,000 range...
...The Brookings study of the share distribution of 2,991 corporations in 1951 indicates that the top 2.1 per cent of the common stock shareholders held 58 per cent of the stock, while the lowest two-thirds of the stockholders held about 10 per cent of the common stock...
...Another criterion for judging the relative changes in the economic position of the elite is liquid assets.l8 In analyzing its significance it should be noted that the percentage of liquid assets held by the lower income groups is a much greater part of their total wealth than among high income groups...
...While I do not intend to deal with the changes in absolute dollar incomes going to various groups, the relation of the relative income shares of each tenth of the nation to the distribution of economic power, consumption, and a decent standard of living will be made clear...
...Sooner or later, where income is unequally distributed, the power of high income groups will also mean access to high prestige positions and symbols and a hierarchic structure of social stratification...
...For 1950, from Statistical Abstract, 1952, chart 320, and Current Population Reports, P. 20, Feb...
...The stock indicated is the estimate of marketable stock held...
...In subsequent calculations it was sometimes necessary to estimate the number of consumer units below the maintenance level by dividing an income category and the consumer units in it by about the income division line of the WPA or BLS maintenance or emergency level...
...These figures include 80 per cent of the relief families, 58 per cent of which received a total income of less than $780, while 35 per cent received between $780 and $1450...
...So long as the present income structure exists, however, a full consumption and full production economy will be a pious but unrealizable goal for those insisting on the preservation of the fundamental economic inequalities which have flourished under Republicans and Democrats alike...
...By 1954 the propor tion increased to almost a third, and 64 per cent of all spending units headed by a person 65 years and over earned less than $2,000 (the average monthly old age assistance benefit in May 1956 was $54.37) . Similarly, the 65 years and over population has increased at a far more rapid pace than the total population since 1900, and as the proportion of the aged grows, the number of spending units living at a depressed income level will in all probability increase with them...
...It divides the population into two groups, the lower of which is struggling to attain a physically more adequate existence...
...In the social theory based on such assumptions, the process of change is seen to be mechanistic in the tradition of naive versions of the idea of progress...
...We wish relatively equal consumption not only because of the equalitarian tradition in American society, but because of a desire to create the economic stability which can arise only from mass consumption, and to avoid the totalitarian or disintegrated social order potential in every economy where large groups have no material "stake" in the value system...
...While the economic status of these groups is doubtless of great importance, no discussion of income distribution which ignores the over-all relative position of all income groups can provide the context in which empirically founded generalizations can be made...
...In 1944 the personal income had doubled over the 1940 level but personal income tax receipts increased 12 times...
...In 1951, with the theoretical tax rate on $1 million incomes at 92 per cent, only 62 per cent of the $1 million and up incomes were effectively taxed...
...Thus it can be assumed that all totals are reliable within two per cent...
...From the point of view of power distribution, not only the relation of managers to stockholders, but the relation of the corporation to society is important...
...Bureau of Census, Historical Statistics of the United States, 1789-1945, Washington, D.G., 1949, Series A 185-194...
...that the upper income groups have always accounted for the major part of the total personal saving, particularly if allowance is made for the undistributed profits of corporations...
...The available detailed studies of stock ownership unfortunately fail to use the same procedures, so that precise comparisons of year to year changes cannot be made...
...The increase in tax rates since 1941 has naturally stimulated the desires of the economic elite to receive income which will be taxed at preferential rates...
...Maintenance and Emergency Income Levels, 1935-36 30 % of national consumer units: Size: below maintenance level below emergency level 2 persons family 4.8 2.7 (no relief) 3-4 persons family (no relief) 12.8 5.5 5-6 persons family (no relief) 6.8 3.9 7 or more persons family (no relief) 4.0 2.9 Single men 31 6.2 3.8 Single women 5.1 2.9 Families receiving relief32 ce...
...The most important cause of the reduction of the share of the upper five per cent is attributed by Kuznets to the relative decline in dividend income as a percentage of the total income among this group since the beginning of World War II—while dividends to the lowest 95 per cent have also decreased...
...On this 3.0 per cent, 1.5 per cent is assigned to each of the sexes...
...1953, p. 509, p. 512...
...Subcommittee on Low-income Families, Joint Committee on the Economic Report, Characteristics of the Low-income Population and Related Federal Programs, 84th Congress, 1955...
...In place of the Veblenian picture of all economic groups consuming and displaying economic status in a hierarchic manner that reflects their access to economic power, we now have, presumably, a tendency to increasingly consume inconspicuously...
...So the promise of America is seen as at least partially fulfilled by the new social theorists, but instead of emphasis being given to ends which are desired, the means have become the central focus...
...It is one thing to talk about the disappearance of a monied elite based on very high annual incomes, quite another to talk about the disappearance of a monied elite altogether...
...To maintain this level in 1935 required $1,261...
...In 1947 about 22 per cent of the spending units, all earning less than $5,000, held no liquid assets, but in 1952 and 1955 about 27 per cent of the spending units, all earning less than $5,000, held no liquid assets...
...The family may divide among themselves, any way they wish, two five cent ice cream cones, one five cent candy bar, two bottles of soda, and one bottle of beer a week...
...Because of the declining farm population and smaller importance of income-in-kind, no attempt will be made to calculate its role in the post-war figures...
...Similarly, the growing percentage of workers aged 55 years to 64 has increased the proportion of workers well beyond their peak earning periods...
...Table 2: Percentage of National Money Income Distribution After Federal Taxes 8 (Number In parenthesis indicates change from before-tax income) 1947 1949 1951 1953 Highest tenth 31 ( -2) 28 (-2) 28 (-3) 28 (-3) 2nd 15 15 15 15 3rd 12 13 (-{-I) 13 (+1) 12 4th 10 II II (+I) II (+I) 5th 9 9 9 9 6th 8(4-I) 8 8 8 7th 6 7 ( +I) 7 (+I) 7 (+I) 8th 5 (+1) 5 5 5 9th 3 3 3 4(+l) I I Lowest tenth I I When considered by tenths of spending units, the assertion that high tax rates have radically reshifted income is unfounded...
...The figures for 1935-36, however, include income-in-kind...
...Needless to say, their deferred income would make a significant difference if it were included in the figures on income distribution...
...The majority of these cases occur in upper income groups which, unlike most white collar and factory workers, usually do not have their taxes deducted in advance and often have additional dividend, interest, rent, and cash fee incomes which are extremely difficult for the government to keep account of...
...millions of families in our industrial cities and towns, and on the farms, have been lifted from poverty or near-poverty to a status where they can enjoy what has been traditionally considered a middle-class way of life: decent clothes for all, an opportunity to buy a better automobile, install an electric refrigerator, provide the housewife with a decently attractive kitchen, go to the dentist, pay insurance premiums, and so on indefinitely 25 The relative quantity, as well as the quality of consumption, is largely a function of income...
...173-186...
...In all these groups Southern and especially Negro workers are overrepresented.34 Census data on average annual incomes of wage and salary earners indicate that in 1949, eighty-eight of ninety-four listed salaried, clerical, and blue collar occupations earned less than the BLS decency income for a family of four, though it must be remembered that in 1950 sixty per cent of the households were composed of three or less persons...
...The poverty originating in "new fashioned" causes is sociological and demographic in origin but economic in its consequences-and equally intolerable in human terms...
...The study by Simon Kuznets on the relative shares of the upper one per cent and five per cent of the total population is frequently cited as proof of the equalization of income...
...The implications to social theory developed from this latter proposition are crucial...
...In 1935-36 about three per cent of the clerical workers fell among the lowest fifth of the spending units, as compared to 15 per cent in 1955...
...David Riesman's The Lonely Crowd is an excellent example of an important contemporary study which is dependent on a theory of income redistribution...
...Adolf Berle, Jr., probably the co-initiator of the entire thesis, has even gone so far as to declare "The corporation is now, essentially, a non-statist political institution, and its directors are in the same boat with public office-holders...
...it is fairly clear from a grouping of the individual forms of saving...
...From 1917-19 to 1935 car ownership spread from 15 per cent of the consumer units to about 55 per cent...
...p. 95...
...1953, p. 113...
...Reason, social action, "inner-directed moralizing" are not only vestiges of a society gone by, but ineffective as well...
...Given the vast increase in credit, the growth of auto ownership since 1941 cannot fail to impress one as being slight...
...According to the Bureau of Labor Statistics, a family of two needs 65 per cent of the maintenance budget for a family of four, a family of three needs 84 per cent, a family of five needs 115 per cent, and a family of six needs 129 per cent...
Vol. 4 • January 1957 • No. 1
