No Middle Class

One of the great misconceptions about our capitalist economy is that it produces a large contingent of middle class citizens. It doesn't. The existence of a middle class, as well as any other class, is dependent on political choices, not market mechanisms.

This misunderstanding of capitalism is closely linked to another myth, one that has become widespread through the writings of Adam Smith, also known as "the father of capitalism." This myth is called the "Invisible Hand":

The invisible hand is an economic concept that describes the unintended greater social benefits and public good brought about by individuals acting in their own self-interests. The concept was first introduced by Adam Smith in The Theory of Moral Sentiments, written in 1759. According to Smith, it is literally divine providence, that is the hand of God, that works to make this happen.
_{source: Wikipedia}

But we all know that it was his book "The Wealth of Nations" that gave him the illustrious title of capitalism's father, and in that book he mentions the Invisible Hand only once, but does link it more directly to economical interactions between individuals who act in their own self-interest. "By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." That's the exact phrase, and even there he doesn't point to some vague mechanism, but instead speaks of the individual agents themselves being "led by an invisible hand." That's very different from how the term has been bastardized to become to mean some mysterious mechanism in a completely free and unregulated market that results in some magic equilibrium in which we all get what we deserve.

Capitalism in and of itself only produces winners and losers, with nothing in between. And Smith knew this; he himself was never an advocate for the anarcho-capitalist interpretation of free market economy. There is no divine providence, no hand of God, no market-mechanism driving a society of purely self-interested agents towards a just equilibrium with a strong and large middle class. This should be obvious by now; after decades of deregulation we've seen a strong decline of the artificially manufactured middle class. Yes, I said "artificially manufactured." Like I said in the beginning: the existence of a middle class is the result of political choices meant to correct the natural processes in capitalism that promote wealth-accumulation in the hands of the owners of the means of production.

Here's a particularly telling passage from a "Harvard Business Review" article from 2012:

Adam Smith suggested the invisible hand in an otherwise obscure passage in his Inquiry Into the Nature and Causes of the Wealth of Nations in 1776. He mentioned it only once in the book, while he repeatedly noted situations where “natural liberty” does not work. Let banks charge much more than 5% interest, and they will lend to “prodigals and projectors,” precipitating bubbles and crashes. Let “people of the same trade” meet, and their conversation turns to “some contrivance to raise prices.” Let market competition continue to drive the division of labor, and it produces workers as “stupid and ignorant as it is possible for a human creature to become.”
_{source: Harvard Business Review}

Yes, Smith was keenly aware of the limitations and dangers of capitalism, and promoted things like public education. He promoted the idea of a well educated population because he believed that "an instructed and intelligent people, besides, are always more decent and orderly than an ignorant and stupid one." This is in accordance with what he described in his first book, "The Theory of Moral Sentiments," about the invisible hand; he believed, or wanted to believe, that the capitalists would act in a moral and just manner, and would use their riches to alleviate the suffering of the poor. The invisible hand as the ethical behavior of the winners inn the capitalist economy, not as some self-regulating and self-balancing mechanism. And that's the truth; capitalism doesn't produce a middle class. It produces rich owners, poor workers and destitute jobless people, with the latter two depending for a decent life on the charity of the former.

But the "middle class" has become synonym with the entire population nonetheless. It's the majority, supposedly, of the people, the ones that have realized the "American Dream" of owning a car and a home, a set of electronic appliances, college education for the kids... We only talk about the middle class, because they reside on the social ladder between the poor and the rich, which are a very small minority. We don't usually talk about the "working class" or the "owner class" or the "capitalists"; that's only for dangerous radical far left thinkers. You know, like yours truly :-) This creates the illusion of a society that's not divided into classes, and a population that is outspokenly not class-conscious, which opens the door to a myriad of other divisions to take center-stage. Which is beneficial for the owner class of course, which is why they promote these divisions through politics, media and education.

The middle class is a capitalist myth and a temporary political reality. Emphasis on "temporary." For a real middle class to exist, we must all be middle class. We must all be able to have a home with a couple of bathrooms, not many people without a home next to some living in a home with 30 bathrooms. And that is achievable. It's just a matter of making different political choices. You can read another short article by my hand on the same topic, but attacked from a different angle, from a year ago: Middle Class Myth.

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