The Economic Crisis: A Marxian Interpretation

TheEconomicCrisis:AMarxian Interpretation

StephenResnickandRichardWolff

Likemostcapitalistcrises,today’schallengeseconomists,journalists,andpoliticians toexplainandtoovercomeit.Thepost-1930sstrugglesbetweenneoclassicaland Keynesianeconomicsarerejoined.Weshowthatbothprovedinadequateto preventingcrisesandservedrathertoenableandjustify(as‘‘solutions’’forcrises) whatweremerelyoscillationsbetweentwoformsofcapitalismdifferentiated accordingtogreaterorlesserstateeconomicinterventions.OurMarxianeconomic analysishereproceedsdifferently.WedemonstratehowconcreteaspectsofU.S. economichistory(especiallyrealwage,productivity,andpersonalindebtedness trends)culminatedinthisdeepandenduringcrisis.Weofferbothaclass-based critiqueofandanalternativetoneoclassicalandKeynesiananalyses,includingan alternativesolutiontocapitalistcrises.

KeyWords: CapitalistCrisis,Exploitation,KeynesianEconomics,Neoclassical Economics,MarxianEconomics

Twodifferentandcontendingmainstreamtheorieshaveexplainedcapitalism’s repeatedcrisesoverthelastcentury.Eachtimeeachtheoryproposedcorrespondinglydifferentsolutions.Today’scrisisisnoexception.Onetheory /called,afterone ofitsfounders,‘‘Keynesianeconomics’’ /claimsthatunregulatedprivatemarkets inevitablyyieldpricemovementsthatreactbackonthedecisionsofbusinesses, workers,andconsumerstoproduceout-of-controlpricespirals.Theseperiodically pushtheeconomyintoinflations,recessions,orevendepressions.Withoutinterventionfromoutside,capitalism’sprivateeconomymayremaindepressedorinflated longenoughtothreatencapitalismitself.Keynesian /ornowmoregenerally ‘‘macro’’ /economicsidentifiesthekeyprivateeconomymechanismsthatproduce cyclicalcrises.Theserangefrommarketimperfectionsarisingfromagents’unequal and/orunfairaccesstoinformationtoaplethoraofnoneconomiccausestypically groupedtogetheras‘‘animalspirits.’’1 Politicalfearcombineswithmacroeconomics toorganizeandenactstateinterventionsaimedatcounteractingtheunwanted

1.PerhapsJosephStiglitzisthemostimportantandbest-knownmacroeconomistarguingthat unfetteredmarketsyieldcyclicalcrises.TheanimalspiritsargumentfirstappearedinKeynes (1964,161);itreferstohowtheexpectedyieldofbusinessinvestmentinrelationtoitscostis ‘‘determinedbytheuncontrollableanddisobedientpsychologyofthebusinessworld’’(317).

ISSN0893-5696print/1475-8059online/10/020170-17

– 2010AssociationforEconomicandSocialAnalysis DOI:10.1080/08935691003625182

extremesofcapitalism’sinherentinstability. ‘‘Regulate,regulate’’ istheKeynesian prophets’mantra.

TheothermainstreamtheoryisassociatedwithAdamSmith,theclassical ‘‘founder ofmoderneconomics’’ whofirstcelebratedtheprivatecapitalisteconomy(free marketsplusprivateproperty)asuniquelyenablingsocietytoproducethemaximum wealthitiscapableof.Initsevolvedform,ithascometobeknownas ‘‘neoclassical’’ or,moregenerally,microeconomics.Neoclassicaleconomicscontinuestheprojectof showinghowandwhyaneconomyofprivatelyownedmeansofproductionandfree, competitivemarketsyieldsthebest(‘‘optimum’’)ofallpossibleeconomicoutcomes. When,occasionally,anonoptimaloutcomeoccurs,itlikelyfollowsfromsomemarket ‘‘imperfection’’ thatis,fromtheneoclassicalperspective,probablytheresultof someperhapswell-intentionedbutfundamentallymisguidedstateintervention.The bestsolutionthenistoletprivatemarketsandprivateenterpriseshealthemselves viatheirinternalmechanisms.NeoclassicaleconomiststypicallydenounceKeynesianinspiredstateinterventions,includingtheirincessantmarketregulationsasinevitably yieldingregulators’mistakes,politicallymanipulatedmarkets,andtheresulting inefficienciesincludinginflation,stagnation,andstagflation.Stateofficialscannot replace,letaloneimproveupon,themarketmechanismthataccommodatesthe infinityofdifferentdemandsandsupplies,communicatestheinfinityofinformation farmoreefficientlythananystatecould,andgeneratestheincentivesleading individualbuyersandsellerstocorrectwhateverexcessesappear. ‘‘Deregulate, deregulate’’ istheneoclassicaleconomists’mantra.

Astoday’sglobalcapitalistcrisisunfolds,Keynesianstateinterventionsare everywhereontheriseaftermorethanthirtyyearsofmarginalization.Sincethe 1970s,neoclassicaleconomistshadeffectivelyreversedandsuppressedsuchinterventionsinaglobalmovementcalled ‘‘neoliberalism.’’ Theywerereactingagainstthe dominationofKeynesiansandKeynesianmacroeconomicsintheaftermathofthe GreatDepressionofthe1930s.Theneoclassicaleconomistshadalwaysattackedthe KeynesianstateinterventionsassociatedwithFranklinDelanoRoosevelt’sNewDeal forseriouslyconstraininganddistortingtheeconomy’sgrowthandtherebypromoting socialconflict(sometimesdubbed ‘‘classwar’’).TheysoughttoreinstituteSmith’s grandvisionofagrowingcapitalism:privateandcompetitivemarketsliftingthereal incomesofbothlaborandcapitalandtherebyavoidingthe ‘‘classconflicts’’ associatedwithinsufficientgrowth.

Inthe1970s,neoclassicaleconomicsdisplacedKeynesianeconomicsglobally. Marketderegulationandprivatizationbecametheofficialandprevailingprinciplesof business,politics,journalism,andacademia.Neoclassicaleconomicsbecameonce again,asithadbeenbeforetheGreatDepression, the moderneconomics.Its other /Keynesianeconomics /wasbanishedasarelicofearliermisunderstandings ofhoweconomies ‘‘really’’ worked.Thedominanceofneoclassicalmicroeconomics wentsofarastospawnagenerationof ‘‘new’’ Keynesianswhoreformulated theirparadigmasanextension/applicationofneoclassicaleconomics.Unrepentant

Everythingandanythingshapes ‘‘businesspsychology,’’ hencethecentralcausalroleof ‘‘animal spirits’’ ingoverningcapitalistinvestmentbehaviorandwhyitfluctuates.Thiskindofargument isnicelysummarizedandextendedtotoday’seconomicworldinAkerlofandShiller(2009).

Keynesianswhorefusedtobecome ‘‘new’’ inthiswayfoundtheirprofessional advancesblockedandtheircareersoftenended.Suchextremeintoleranceof differencesbetweenneoclassicalandKeynesianeconomicsintherealmsoftheory, academicdiscipline,andprofessionalcareersreplicatedthewaysbothofthemhad jointlysuppressedMarxianeconomicssincethelate1940s.

Fromthe1970sonward,deregulationofmarketsyielded,atfirst,thechanged incentives,prices,andgrowththeneoclassicistshadpromised.Astheyearspassed however,theeconomyalsoexhibitedthemarketswings,unevenincomeandwealth developments,andeventualeconomicbubblesinstockmarkets,realestate,and financedarklypredictedbyKeynesiancritics.Thenthenewmillenniumopenedwith astockmarketcrashfollowedafewyearslaterbyarealestatecollapse,aliquidity crisis,andnowadeeprecessionthreateningtoslideintoadepressionofmajor proportions.NeoclassicaleconomistsareinretreatandtheKeynesiansareemerging outoftheirbanishment.Paradoxically,thelatterfindallies(businessleaderswhose survivalsuddenlydependsongovernmentlargesse)amongsomestalwartformer defendersofthemarketsystem.

TheKeynesianmessageremainswhatitalwayswas:thestatemustsavecapitalism fromitself.Ithasbecome,again,today’swisdom.Facedwiththecurrentcrisis, fewerneoclassicaleconomistsstilladvocatewhathasbecomeyesterday’swisdom: marketsyieldprosperityandgrowthandoccasionallyhealproblemswithoutmuch,if any,needofstateintervention.

However,wehavenotlostconfidenceintheabilityofneoclassicaleconomicsto reemergeagainsomedaytoreaffirmtheiroldprogramofderegulationofmarkets. Ourconfidenceintheirrestorativepowersrestsonthecontinuationofacapitalism thatwillgiverisetofutureeconomicproblemsandcrises,includingthosefosteredby theveryKeynesianregulationsinstitutedtoday.Neoclassicaleconomicshadreemergedbeforeinthe1970swhenitundidmanyoftheKeynesianinterventionsthat hadaimedtoovercometheGreatDepressionofthe1930sandpreventfuture depressions.Weseelittlecompellingevidencenottoexpectyetanotherfuture neoclassicalrevivaliftoday’scrisisresultsinnomorethanaKeynesianresponse.

Indeed,therepeatedoscillationsbetweenthetwotheoriesandtheirassociate policyprescriptionsemergealsofromafundamentalperspectivebothsidesshare. Theylargelyagreethatthemarketsystemisthebestofallknownmechanismsto allocateresourcesefficiently.Manywouldaddthatmarketsalsoallocateresources equitably.Theyclaimthatfullycompetitivemarketsenablethosewhocontributeto wealthproductiontoreceiverewards(incomes)exactlyequaltothesizeoftheir contribution.Wherethetwosidesdifferisinhowtoinsulateandprotectthemarket systemfromthecriticismsandmovementsforstateeconomicinterventionsthatflow fromcitizenswhosufferfromtheeconomy’srecurringrecessionsandinflations. Againstthecriticismandmovement,onesidearguesto ‘‘leavethemarketaloneso thatitcanfinditswaytoanew,efficient,andjustsolution.’’‘‘No,’’ saystheother. ‘‘Weneedstateinterventiontohelpguidethemarket’ssearchforanewandefficient solution.’’ Capitalism /definedasprivateenterpriseandfreemarkets /remainsthe optimumsystemforbothsidesintermsofwealthcreationandsocialwelfare.

Bothsidesthusshareaprofoundconservatismvis-a`-viscapitalism,despiteholding radicallydifferentviewsontheneedforstateintervention.Theoscillationbetween

themservestheirsharedconservatism.Itpreventscrises in capitalismfrombecoming crises of capitalism,whenthesystemitselfisplacedinquestion.Itdoesthisby shapingandcontainingthepublicdebateprovokedbycrisis-causedsocialsuffering. Whenseriouscriseshitaderegulatedcapitalism,thetwosidesdebatewhetherthe solutionisregulationorlettingthesystemhealitself.Whenseriouscriseshita regulatedcapitalism,thetwosidesdebatewhetherthesolutionisderegulationor moreordifferentregulation.Thiseffectivelykeepsfrompublicdebateanyserious considerationofanalternativesolutiontocapitalism’srecurringcrises:namely, transitiontoaneconomicsystemotherthananddifferentfromcapitalism.

AMarxianAnalysis

AnalternativetobothneoclassicalandKeynesianexplanationsandsolutionsfor capitalistcrisesemanatesfromtheMarxiantradition.Itsexplanationstressesneither whatKeynesiansfocuson(destabilizingmaneuversbyself-seekingindividual consumers,producers,merchants,andbanksfacinganinherentlyuncertaineconomy and/orpossessingasymmetricalinformationinregardtomarkets)norwhat neoclassicistspinpoint(market-destabilizingconcentrationsofprivatepowerby marketparticipantsand/orpublicpowerbythestate).Rather,Marxiantheory pursuestheconnectionsbetweencapitalism’scrisesanditsdistinctiveclassstructure (itsparticularjuxtapositionofcapitalistsappropriatinganddistributingthesurpluses workersproduce).Weproposetoshowtheseconnectionsintherestofthispaper.On thatbasis,Marxiantheoryreachesverydifferentconclusionsfromthoseofthe neoclassicalandKeynesianeconomists.Briefly,durablesolutionstocapitalistcrises require,intheMarxianview,transitiontoadifferentclassstructure.Thatisbecause capitalism’sclassstructurehassosystematicallyandrepeatedlycontributedtocrises inboththeregulatedandderegulatedformsofcapitalism.ThatiswhyMarxiantheory doesnotsharethefundamentalconservatismofbothneoclassicalandKeynesian economicsvis-a`-viscapitalism.

ExploitationandU.S.History

Notsurprisingly,ourMarxianexplanationconnectsthecurrentcapitalistcrisisinthe UnitedStatestoexploitedworkersandexploitingcapitalists.2 ThefailureofU.S. capitalismin2008 /9hasdeepclassrootsintheprevious120years.Fromtheearly 1890stothelate1970s,twokeytrendsemergedinindustry.Inone,therealwageof workersinmanufacturingrosebyabout1.8percentperyearand,intheother, workers’productivityinmanufacturingsteadilyroseatanevenhigherrateamounting

2.Toavoidambiguityaboutwhatwemeanby ‘‘connect,’’ wedonotaimtoreducecapitalist crisestoanunderlyingclasscause.Werejectessentialistexplanationofallkinds,Marxianor non-Marxian.Rather,wewishtoaddclassasoneofmanycontributingandinteractingcausesof economiccrisis;inthiswearemindfuloftheexclusionofclassfrommostotheranalysesofthe crisis.

to2.3percentperyear.3 RoughlyinterpretingthesetwotrendsintermsofMarxian valuetheory,weconcludethattherateofsurplusvalueintheUnitedStates / the growthofrealoutputperindustrialworkerrelativetotherealremunerationper industrialworker /rosesteadilyforalmostninetyyears.InMarx’slanguage,that centurysawU.S.capitalismdeliverasurplustoitscapitaliststhatrosefasterthanthe realwagesofworkers.Workerswereevermoreexploited(theexcessofthevalue addedbytheirlaboroverthevaluepaidfortheirlaborpower),buttheywerealso everbetterpaid.Wedoubtanyothercapitalism,thenorever,deliveredsuchresults forsolong.ItdrewtensofmillionsofimmigrantsandpropelledtheUnitedStatesinto itsglobalsuperpowerposition.

ThatcenturywasasustainedsuccessforU.S.capitalism.Capitalists’steadilyrising surplusesweredistributedeffectivelytoexpandandenhancetheconditionsfortheir classexploitation.Suchdistributionstherebyyieldedanevergrowingsurplustofund furtherdistributionsinthecumulativegrowthofU.S.capitalismtoglobalhegemony. Thediversityofcapitalists’differentsurplusdistributionsillustratesthesocially transformativescopeofU.S.capitalistdevelopment.Sizeableportionsofthesurplus wentforcapitalaccumulation(machines,factories,infrastructure,etc.)thatdirectly expandedworkers’outputs(andhenceexpandedsurpluses).Newlyexpandedmeans ofproductionoftenembodiednewtechnologiesthatraisedlaborproductivity, loweredunitvaluesofconsumergoods,andhenceraisedtherateofexploitation. Surplusdevotedtocoverresearchanddevelopmentexpensescreatedafloodofnew industriesandtheirnewcommoditiesembodyingevermoresurpluses.Theusesof surplusestofundgrowingcorporatebureaucracies(investinginthe ‘‘intangible asset’’ ofmanagement)enabledthemtoextractincreasedsurplusesfromtheir workers.4 Theportionofthesurpluspaidtomerchants(usuallyintheformof discountsoncapitalistcommoditiessoldtothem)waslessthanwhatcapitalistshad hadtopaytheirownsalesstaffs.Effectivelyeconomizingonthecostsofselling,and therebygeneratingamajorwholesaleandretailtradesystem,capitalistshadthat muchmoresurplustodistributeelsewhere.Theportionoftheirappropriated surplusesthatindustrialcapitalistspaidtobanksasinterestgavethemaccessto thesavingsofothersusedforadditionalproductiveinvestment,researchand development,andexpandedandimprovedcorporatebureaucraciesandthusmore surplus.Likewise,surpluspaidoutasdividendstoshareownersenabledcapitalist corporationstotapyetanothersourceofmoneyforinvestmentbysellingsuchshares publicly.Finally,theportionofcapitalists’surpluspaidastaxesenabledand pressuredfederal,state,andlocalgovernmentstoprovidetheinfrastructure (laws,roadsystems,education,healthservices,themilitary,newresearchandits yieldofnewproductsandtechnology,andsoon)thatloweredcapitalists’costsand facilitatedrisingsurplusproduction.

3.Theseareaverageannualgrowthratescalculatedfromthedatadescribedinthenoteon sources.Thegrowthofrealwagesandproductivityiscalculatedfrom1890to1978.

4.Theterm ‘‘intangibleasset’’ istakenfromTeece,Pisano,andShuen(1997,521).Theauthors presentaviewoftheimportanceofcorporatemanagement /inourMarxianterms,asubsumed classofcorporatemanagers /inshaping(overdetermining)thepresentandfutureprofitability (surplusvalue)ofenterprises.

ThegeniusofU.S.capitalismbeforethe1970sconsistedinthecombinationof risingrealwages,surplusesrisingfaster,andsurplusdistributionsthatreactedbackto reinforcethepatternofrisingwagesandfaster-risingsurpluses.Thepossibilityof suchacapitalismwasarticulatedinMarx’s Capital, aswerethecontradictions.In volume1,Marxidentifies,locates,andanalyzesworkers’productionofthesurplus valueappropriatedbytheircapitalistemployers.Involumes2and3,Marxelaborates capitalists’distributionofthesurplusvaluetheyhaveappropriated tosecurethe conditionsoftheirpositionsatopagrowingcapitalistsystem. Althoughrepeatedly punctuatedbycrises,thecenturyofU.S.capitalismendinginthe1970sexemplified theself-expansionpossibleifandwhensufficientsurpluseswereappropriated(the argumentofvolume1)andeffectivelydistributed(theargumentofvolumes2and3).

However,Marxiantheoryalsostressesthecontradictionsineverysystem. Capitalism’sparticularcontradictionswerealsoillustratedinU.S.historyasthe system’ssuccesscoexistedwithitsfailure.Theothersideoftheworkers’risingreal wageswasdeepeningexploitation.Theeverloudernationalistcelebration ofa merelyformal democracyandequalitythuscoexistedwith /andservedideologically toobscure /aneverwidening real dividebetweenagrowingmassofexploited workersandanevermoreconcentratedeliteofmultinationalcorporatecapitalists andtheirvarious ‘‘hangerson.’’

Yetfewamongthesurplusproducersandfewerstillamongthosewholivedoff surplusdistributionsacknowledgedthesocialcostsandmiseriesarisingfromthe relativedisparitygrowingacrossU.S.history.Mostpublicdebatemissedthe connectionsbetweencapitalistexploitationandsocialproblemssuchasurbandecay, corruption,crime,familydisintegration,personalandcivicalienation,andwars.The notionofpovertyaslinkedtocapitalists’refusaltoemployworkers(becauseoftheir profitconsiderations,cyclicalcrises,etc.)waswidelyrepressedinfavorofblamethe-victimalternatives(forexample,unemployedworkerslackedrequisitequalificationsorpreferredleisuretopaidwork).Therecurringcapitalistcrisesthemselves wererarelyconnectedtocapitalistexploitationanditsunderlyingclassstructure; rather,theywerecausedbythe ‘‘greed’’ ofafew ‘‘badapples,’’ inappropriate governmentactionorcriminalmisbehavior,animalspiritshauntingindividualand groupdecisions,orunintendedconsequencesarisingfrommarketimperfections. Becauseoftheneglectedconnectionofthecapitalistclassstructuretoeconomic crises,wefocushereonthatconnectiontothecurrentcrisis.

RisingExploitationwithRisingRealWages

Fromthelastdecadeofthenineteenthcenturytothelastthirdofthetwentieth century,risingworkers’realwagesallowedrisingconsumptionlevels.Overthose decades,newmeaningscametobedeeplyattachedtoworkersconsumingmore goodsandservices.Personalconsumptionbecamethestandardbywhichworkers measuredpersonalsuccessinlife:theirownandalmosteveryoneelse’s.More consumption,quantitativeand/orqualitative,wasequatedwithmorepleasure derivedtherefrom.Careerchoicesandmarriageswereundertakenwithagrowing focusontheirprospectsforrisingconsumption.Parentsdefinedtheirsuitabilityas

suchintermsofenablingtheirchildrentoconsumemoreandhencelivebetterlives. Educationpromisedbetter-payingjobsandhigherlevelsofconsumption.Whatyou consumemergedintowhatyouare.

Perhapsnogreatsurpriseshouldarisethenattheorigin,explosivegrowth,and centralplaceofadvertisinginAmericanlife.Itssocialfunctionwasandistopersuade individualstobuyasmuchaspossibleofwhatadvertisers’clientssell.Advertising acceleratedtransformationofthesimpleactsofbuyingandconsumingintoessential strategiesforachievingtheAmericandream.Showotherswhoyoureallyareby consumingaccordingly.Foolothersbycleverlybuyingandconsumingcheapimitations ofmorecostlygoodsandservices.Facedwithwidespreadsocialacceptanceof consumptionasthekeystandardofpersonalsuccessandachievement,dissenting religiousleaders,politicians,writers,andothershavesometimesreactedwithcritical denunciationsof ‘‘materialism.’’ Theirrecurringreactionsareanotherindexofthe socialpower,influence,andcelebrationofconsumptionintheUnitedStates, henceforthreferredtoasconsumerism.

ConsumerismstandsinaspecialrelationshiptoU.S.workers’lackofawarenessof theirclassexploitation.Consumerismconceptualizedrisingwagesandconsumption levelsas thefullandappropriatecompensation forworkers’wagelabor.Bystressing thatcapitalismrecognizedandrewardedworkersappropriately,evengenerously, consumerismeffectivelydisplacedMarxianconceptsofworkers’exploitation. Indeed,theveryterm ‘‘exploited’’ wasredefinedtomeanthatminorityofworkers temporarilyandperhapsunfairlydeniedthewagesandconsumptionstandards capitalismnormallydeliveredtoallworkers.Consumerismaffirmedthatrising consumptionprovedthat(1)capitalismcouldandwould ‘‘deliverthegoods,’’ and (2)highandrisingindividualconsumptionlevelsincapitalistsocietiesreflectedtheir superioritytoanysocialistalternative.Ofcourse,consumerismalonedidnot suppressMarxianexplanations;governmentrepressionandprocapitalistideological campaignswagedbybusiness,religious,andothergroupsalsocontributed.So,too, didtherelentlessassociationofpersonallibertieswithprivateenterpriseandfree marketsagainstoppressivegovernmentintrusionassociated(whennotsimply equated)withsocialism.However,consumerismhelpedleverageU.S.capitalism’s successfulgrowthfrom1890to1970intoaprofoundmassdisinclinationtoconfront classexploitation,itssocialcosts,oritsrootinthecapitalistclassstructure,as arguedinMarxianexplanations.

RisingExploitationwithConstantRealWages

Startinginthelate1970sandcontinuingthereafter,realwagesofindustrialworkers intheUnitedStatesstoppedrising.Thiswasaprofoundchangefromtherecordofthe previousninetyyears.Whilemanufacturingproductivitycontinuedtorise(atarate of3.26percentperyearfrom1978to2007),realwagespaidworkersin manufacturingremainedmoreorlessconstantandevenfellabitfromthento today(decliningslightlyatarateof 0.37peryearbetween1978and2007).We presentthesetwoseriesinFigure1,basedonthedatasourcesdescribedbelow. Employerskeptgettingmoreandmoreoutputperworker(theproductivityline),but

Figure1 IndexesofOutputandRealWagesperHour,Manufacturing,1890 /2007. Index1890 100.

nolongerhadtopaytheworkersmore(therealwageline).Workersnolongershared inproductivitygains;thelatterthusraisedsurplusesevenfasterthanbefore.In Marxianterms,therateofexploitation(theratioofsurplusvaluetothevalueoflabor power)rosesteadilytopossiblyunprecedentedheights.Thesocialdividebetween producersandappropriatorsofthesurplussurgedaswell.Mostimportant,theend ofrisingrealwagesclosedanera.TheimpactontheUnitedStatescannotbe overstated;acapitalismthathadcometodefine,celebrate,anddefenditselfby referencetorisingconsumptionenabledbyrisingwagesforitsworkerscouldno longerdoso.Theimpactwasallthegreaterbecausenopublicdebateaboutthe meaningandimplicationsofthechangeoccurred.Workersexperiencedandreacted tothechangeasapersonalandindividualmatterratherthanasasweepingsocial change.

Thepost-1970sexplosionofsurplusvalueproductiontransformedU.S.capitalism. Wealthpouredintocapitalists’accountsastheyappropriatedevermoresurpluses fromworkerswhonolongerneededtobepaidrisingrealwages.Sincemostcapitalist enterpriseintheUnitedStatesiscorporate,theresultswereastunningexpansionof corporatewealth,power,andinfluenceoverallofsociety.Corporateboards ofdirectorsdistributedmostoftheexplodingsurplusespartlytothemselves(as skyrocketingtopmanagerialsalaries,stockoptions,andbonuses)andpartlytolowerlevelmanagers(astheirremunerationandoperatingbudgets),bankers(interestand fees),merchants(discountedwholesaleandretailprices),shareowners(dividends), andownersoflandandtechnology(rents).Thesegroupsprosperedwhilethevastmass ofworkersfoundlifeincreasinglydifficult,asweexplorebelow.

WhyRealWagesStoppedRising

Bythelate1970s,asevereproblemconfrontedUScapitalists:theywere appropriatingeverlargersurpluses,butnewdemandsfordistributionsofthose surpluseswererisingevenfaster.Corporatemanagersdemandedmoreofthesurplus toundertakecapitalaccumulationandimprovedtechnologiestocompetemore effectivelywithforeigncompetition.ThespecialperiodafterWorldWarII,whenno seriouscompetitorsconfrontedU.S.capitalists,hadended.WesternEuropeanand Japanesecapitalistshadrebuilttheirindustrialcapacitieswithaneffectiveeyeto outcompetethedominantAmericans.5 Atthesametime,governmentofficials demandedhugedistributionsofthesurplus,chieflyintheformofcorporatetaxes, notonlytofinancethecontinuedpostwardominanceofAmerica,butalsotofund ahostofsocialprogramsdirectedattheincreasinglyrestivepoor,thenewly rediscovered ‘‘otherAmerica.’’ Laborunionscontinuedtousetheirstate-sanctioned monopolypowertopressforevermoreofthesurplustogobacktoworkersinthe formofhigherwagesandhealthandpensionbenefits.Corporationstooktheleadin devisingstrategiestocopewiththedisjunctionbetweenappropriatedsurplusand distributionaldemandsuponit.

Bytheendofthedecade,anewpresidentwaselectedwhoidentifiedthestateand unionsasspecialinterestgroupsthatthreatenedallAmericans.Withcompliant legislatorsandpublicopinionmakers,heattackedunions,reducedchieflycorporate taxesandindividualtaxesontherich,andderegulated.RonaldReagan’snewpolicy conformedtotheneoclassiciststrategyofeliminatingtheconcentrationsofpowerin societybelievedtothwarttheotherwisesmoothoperationofanunfetteredmarket system.Withreducedtaxcollections,thestatecoulddoless(especiallyintermsof publicemployment)and/orbecameevermoredependentonbuyersofgovernment debt(chieflycorporationsandtherich).Unionslostwhatlegalandmoralsupportthe stateonceprovided.Theirerodedbargainingpowerundercutworkers’abilitiesto winrisingrealwagesandeventuallybenefits,too.Thecombinationofflatreal wages,reducedcorporatetaxes,andderegulatedmarketsprovidedmanycapitalists witha ‘‘solution’’ totheimmediatepressuresontheirsurpluses.Neoclassicaltheory warrantedthesepoliciesasgoodeconomics.

InMarxianterms,Reagan’spoliciesenabledcapitalists(1)tohiremorelaborpower andmakeitmoreproductivewithoutraisingwagesand(2)tosecurethestate’s servicestobusinessforlowertaxpayments.Moresurplusvaluewastherebyproduced andmorewasfreed(bylowercorporatetaxobligations)toberedirectedtoexpand capitalaccumulation,researchanddevelopmentbudgets,andthecostlyshiftof productionfacilitiesoutsidetheUnitedStateswherewagesandothercostswerefar lower.Asubstantialandsustainedentryofwomenintothelaborforce,partlyaresult ofthelongstruggleofwomentogainmorecontrolovertheirlivesandpartlydueto theneedtosupplementpinchedfamilyincomes,onlyaddedtothedownward

5.InMarxianterms,U.S.industrialenterprises(insteel,autos,rubberproducts,and electronics)werelosingsuperprofitstoforeigncompetitors.Thisreducedavailablesupplies ofsurplusestocapitalistsintheseindustrieswhilesurplusdemandsrose.

pressureonrealwages.Computerizationofmostworkplacesacrossthecountry, startinginthe1970s,alsochangedthesupplyanddemandconditionsinlabormarkets tothedetrimentofrealwages.Massiveimmigrationinsearchofjobsandthe Americandream,activelyabettedandabusedbycountlessemployers,likewise operatedtounderminerealwageincreases.Inthesemultipleways,U.S.capitalists soughttocompetemoresuccessfullyontheincreasinglycontestedterrainofthe emergingworldeconomy.However,thispreferredsolutionforcapitalistsproduced newproblemsforU.S.workersandthestate.Capitalists’responsestotheirgains, togetherwithworkers’andthestate’sresponsestotheirlosses,eventuallyconverged tobecomeU.S.capitalism’sgravestcrisissincethe1930s.

Workers’ResponsetotheEndofRisingRealWages

Theendofrisingrealwagesconfrontedworkers’familieswithadeepcrisis.Would theyforgorisingconsumptionsincetheylackedtherisingwagestoaffordit?Given thesignificanceofrisingconsumptionandconsumerisminU.S.history,workers’ answerprovedtobearesoundingno.Risingconsumptionwastherealizationof personalhopes,thesignofsocialsuccess,thereturnoneducation,andthepromise toone’schildrenthatone had tokeep.Withrisingwagesnolongeravailable(norany organized,socialresponsebyunionsorsocialmovementsthathadbeenseriously weakenedsincethe1960s),workersandtheirfamiliesrespondedindividually.

Firstofall,inreactiontostagnatingrealhourlywages,workers’householdssent moreoftheirmemberstodomorehoursoflabor.Husbandstooksecondandeven thirdjobsand/orworkedadditionalhoursatfirstjobs,teenagerstookjobsafter school,retireesreturnedtopart-orfull-timework,andmostimportant,millionsof housewivesandmothersenteredthelabormarkets.Whiletheseresponseshelped raiseadditionalfamilyincome,theincreasedsupplyoflaborfurtherunderminedany chanceforrealwagestoresumerising,whichreinforcedtheexodusoflaborfrom households.

Increasedpaidlaborbymoremembersofworkers’householdsimposedenormous personalcostsandtherebysocialcosts.Womenincreasinglyheldtwofull-timejobs, oneoutsideandoneinsidehouseholds.Houseworkandchildcareremainedlargely women’sobligationsevenwhentheyperformedfull-timepaidlabor.Theaddedstress ofthisdoubleshiftalteredandstrainedhouseholdrelationships.Thedivorcerate roseasdidsignsofalienation(drugdependencyandintrafamilyabuse).Theadded costsofwomen’swagelabor(inchildcare,women’sworkclothes,transportation, purchasedmeals,cleaningexpenses,drugs,counselingservices,etc.)largelynegated thenetcontributionthatpaidlaborcouldmaketoresumingatrendtowardrising consumption.Thus,anothersourceoffundsforthatpurposehadtobetapped.

Thatsourcewashouseholddebt.TheFederalReserverecordsatotalhousehold debtin1975of$734 billion.By2006,ithadrisento$12.817 trillion. Thisthirty-year debtexplosion,mostlybasedonmortgages(whatcollateralworkerspossess,ifany,is thehome),hadnoprecedent.Workerslargelystoppedsavingandmillionstookon debtlevelsatorabovewhattheycouldreasonablyexpecttosustain.Native-bornand immigrantsweredeterminedtoaimattheAmericandreamnomattertherisksand

costs;sohadthenation’shistorypreparedthem.Bythenewmillennium,U.S. workerswereexhaustedbytheirlonglaborhours,emotionallystressedbythe disintegrationoffamiliesandhouseholds,andextremelyanxiousaboutunprecedenteddebtlevels.

InMarxianterms,thecombinationofroughlyconstantrealwageswithrisinglabor productivityintheproductionofwagegoodsmeantthatthevalueoflaborpower fell.MoreandmoreofthetotalvalueaddedbyU.S.workerstooktheformofsurplus valueappropriatedbycapitalistemployers.Whatthemassofworkersnolongergot comprisedtheunprecedentedgainsoftherelativelysmallgroupofsurplusappropriatingcapitalistsandthosefavoredbytheirenlargeddistributionsofthose gains.

TheCapitalists’Responses

Theothersideofthepost-1970ssqueezingoftheAmericanworkerhasbeenthe expansionoftheAmericancapitalist.Overthelastthirtyyears,therateof exploitationoutperformeditshistoricupwardtrend.Assuggestedbythewidening gapbetweentheproductivityandrealwagelinesinourchart,itliterallytookoff. Indeed,theremarkableshiftinincomedistributionoverthesedecades,favoringthe verytopincomeearnersintheUnitedStates,reflectsthisriseinexploitation(Saez 2009).6 Capitalistsweredrowninginfast-growingrevenueinflowsinitiallydeposited (chieflybythecorporationswhoaccountformostsales)inbanksandotherfinancial institutions.Fromthere,corporateboardsofdirectorsallocatedthenet(after replenishingused-upinputsandpaying ‘‘nonsupervisory’’ employees)revenuesin increasinglyspectacularforms.

Theyenlargedthebudgets,salaries,andbonusesoftopcorporatemanagersto produceanew ‘‘gilded’’ ageforthem.Theirgaudycelebrationofpersonalwealth becametheobjectofmediaadulationthatcultivatedmassenvy.Thispattern replicatedattheendofthetwentiethcenturywhatJohnD.Rockefelleretal.had arrangedattheendofthepreviouscentury.Onedifferencewasthatthentheywere called ‘‘captainsofindustry’’ bysome,butalso ‘‘robberbarons’’ bymanyothers. Today,thesofter ‘‘newcorporatesuper-rich’’ seemstoprevail;wenowlive,afterall, inapostideologicaltime.

6.ItisworthquotinginsomedetailthefindingsforthechangingU.S.incomedistributionfrom 1917to2007: ‘‘TheoverallpatternofthetopdecileshareoverthecenturyisU-shaped.The shareofthetopdecileisaround45percentfromthemid-1920sto1940.Itdeclinessubstantially tojustabove32.5percentinfouryearsduringWorldWarIIandstaysfairlystablearound 33percentuntilthe1970s ... Afterdecadesofstabilityinthepost-warperiod,thetopdecile sharehasincreaseddramaticallyoverthelasttwenty-fiveyearsandhasnowregainedits pre-warlevel.Indeed,thetopdecilein2007isequalto49.7percent,alevelhigherthanany otheryearsince1917andevensurpasses1928,thepeakofthestockmarketbubbleinthe ‘roaring’twenties’’ (Saez2009,2).Incomeismeasuredasthesumofallmarketincomes, includingrealizedcapitalgainsandgrossofincometaxes. ‘‘Topdecile’’ referstofamilieswith anincomeofmorethan$109,600.

Especiallysincethe1970s,corporateboardsofdirectorshavealsospentlavishlyon computerization,onresearchanddevelopment,andonmovingproductionfacilities abroad:alltoadvancetheircompetitivepositionsintheworldeconomy.7 They generouslylubricatedpoliticianstoreinforcemanyoftheconditionsthatgenerated theexplodingrevenueinflows.Likewise,enlargedpaymentsofdividendstoshare owners,rentstoownersoflandandtechnology,feestomerchants,interestandother feestobanks,andfeestoarmiesofhigh-pricedspecialistsandconsultants(lawyers, advertisers,publicrelationsfirms,andsoon)becamethenorm.

Explodingwealthconcentratedinrelativelyfewhandsledtoveryrapidgrowthin enterprisesspecializinginmanagingsuchwealth:investmentbanks,hedgefunds,and soon.Wealthmanagementslidseamlesslyintospeculation,ashappenedinpastrunupstocapitalistcrises.Thus,financialenterprisescompetedevermoreintenselyfor depositsfromthesurplus-appropriatingcapitalistsandthosetheyfavoredwith surplusdistributions.Tothisendthey ‘‘found’’ andoftencreatednewfinancial instruments(‘‘specialinvestmentvehicles,’’‘‘collateralizeddebtobligations,’’ ‘‘creditdefaultswaps,’’ andsoon)thatwouldyieldbetterreturns.Theywentever further /intermsofgeography(drawingdepositsgloballyandinvestingglobally), legality(skirtingaroundfinancialregulationsandexpandingunregulatedfinancial activities),andprudence(makingeverriskierinvestments).Solongasthefloodof surplusintothefinancialsectorcontinued,thatsectorgrewmuchfasterthanany otherpartoftheU.S.economy.Itfattenedfastfromthehugefeesandcommissions itdrewfromhandlingandcirculatingthatflood.Agenerationofcollegegraduates forsookothercareersforquickwealthonWallStreetorelsewhere ‘‘infinance.’’

ContradictionandCrisis

Marxiantheoryfocusesoncontradiction.Thus,itcentersattentiononthenexus connecting,ontheonehand,workerssqueezedbytheendofrisingrealwages,and, ontheother,capitalistsrakingintheresultingexplosionofsurplusvalue.Thatnexus wasdebt.ThefinancialindustryintheUnitedStatesinventedandproliferatedthe requisitemechanisms.Theyenabledcapitalistswithrisingsurplusestolendagood portionofthemtoworkers.Thelatterborrowedchieflybecausetheyhadnoother waytorealizetheAmericandreamoncerealwagesstoppedrising,andsecondarily becausecountlessreassurancesweremadethatborrowingwassafe,appropriate,and itselfveryAmerican.Theworkers’demandforcreditwasaneffectofrising exploitationintheUnitedStatesoverthelastthirtyyears.Bankerswereflushwith thedepositsofexpandedsurplusvaluefromthatrisingexploitation.Competition amongthemdrovealltoseeknewer,moreprofitableoutletsforloans.Whereasin earliercenturiesbankershadlenttoneedyfeudallordsandkings,nowtheylentto workerswhoserealwagesstoppedrisingandtoagovernmentthatcuttaxes.To chargethatborrowingworkerswerestupidorirresponsible,orthatbankandother lenderswereparticularlydeviousorgreedy,substitutesmoraldenunciationsfor

7.Thatis,inMarxianterms,notonlytoarrestthedrainofsurplusestoforeigncompetitorsbut alsotogoontheoffensiveandgainsuperprofitsfromthem.

socialanalysis.OurMarxianapproachaimsinsteadtounderstandhowandwhythe economic,political,andcultural(includingvariousmoralfailingsaswell)conditions ofcapitalismgeneratedthecontradictorypost-1970sdevelopmentthatculminatedin itssecondglobalcollapseinseventy-fiveyears.

Keytothedebtnexusbetweenworkersandcapitalistswasdebtsecuritization. Becausetheonlycollateralworkerscouldeverofferweretheirhomes,mortgages soaredafterthe1970sandwiththemsecuritiescomprisedof/backedbybundlesof mortgages.Acrossthecountry,banksandbankagents(‘‘mortgagebrokers’’)pushed mortgagesandquicklyresoldthemtothebundlers/securitizerswhothenresoldthem to ‘‘investors’’ (includingthosewiththemushroomingsurplusvalue /basedincomes). Becausemortgageoriginatorsearnedtheirfeesandimmediatelyresoldmortgages, theyhadeveryincentive not toascertainwhethertheborrowingfamiliescould reasonablyaffordsuchmortgages.Giventheintensecompetitioninthefinancial industry,corruptioninevitablybloomed.Iteventuallysparkedthelargerfinancial crisiswhendefaultratesontheleastaffordable(‘‘subprime’’)mortgagesundermined thevaluesofsecuritiesintowhichsuchmortgageshadbeenbundled.Ofcourse,once thesubprimemortgagesecuritiesmarketcollapsed,thecrisisspreadtotherestof themortgage-backedsecuritiesmarketandthecreditmarketsmorebroadlyand, fromthere,toalltheotherinterconnectedmarkets.Sincecapitalistmarkets interconnectdifferentpartsoftheeconomy,transmittingchangeinoneparttoall others,they,too,contributedtothesystem’scurrentcrisis.

Capitalistscouldanddidexultafterthe1970sasthesystemaccumulatedincome andwealthforthemonanunprecedentedscale.Theyhad,althoughwithout acknowledgingthefact,substitutedrisingloanstotheirworkersinplaceoftherising realwagestheirworkershadenjoyedforthepreviouscentury.Thiswaslittleshortof acapitalistfantasycometrue.Theypreferredtobelieveinsteadthattheefficiencydrivenmechanismsofprivateenterpriseandfreemarketsaccountedfortheirgood fortune, ‘‘benefitedeveryone,’’ andtherebyprovedprivate,unregulatedcapitalism’s superioritytoanyconceivablealternativesystem.Whilethegoodtimesforcapitalists rolled,theworldsofpolitics,media,andacademiaaffirmedsuchbeliefsonly tooeagerly.Theideasthattheendofrisingrealwageswasthehardrealitythat dissolvedthemagic,andthatthecapitalists’gainsweretheworkers’losses,were unacceptableandthereforegenerallyignored.Onlywhentheresultingmassworker exhaustion,stress,anddebtcollapsedthesystemdidthat ‘‘otherside’’ ofcapitalist euphoria /thatcontradictionthatMarxiananalysishadearlierfoundandelaborated /begintobecomemoregenerallyvisible.

AMarxianSolution

If,aswewouldargue,asteadilyrisingrateofexploitationpropelledworkersfirst intodebtandfromtheretodefault,onesolution(orpartofasolution)would logicallyfollow:eliminateclassexploitation.TheMarxianpolicyofpursuingsucha solutionwouldsharplydistinguishitfromtoday’sKeynesianoryesterday’sneoclassicalpolicies.AMarxianapproachofthesortwerecommendwouldnotaimto reformcapitalismbyeitherincreasingordecreasingstateeconomicintervention,by

regulatingorderegulatingcreditandperhapsothermarkets.Instead,wewouldaim toeliminatecapitalismintheprecisesenseoffundamentallychangingtheclass structureinproduction.That,forus,isthekeychangewhichcouldbeachieved togetherwithmoreorlessstateinterventionorregulationaspeoplemightprefer.

Thechangeweadvocatewouldputworkersinsideeachindustrialenterpriseinthe positionoffirstreceiversofthesurplusvaluetheyproducedinthatenterprise.That would,ofcourse,alsopositionthemasthefirstdistributorsofthatreceivedsurplus value.Thesurplus-producingworkerswouldbecomeineffecttheirownboardof directors,displacingtraditionalcorporateboardschosenbyandresponsibletomajor shareholders.Thisiswhatwemeanbyeliminatingthecapitalistclassstructure.It couldbeamajorfirststepinanewkindofclassdemocratizationoftheeconomy generallyandofeachproductiveenterprise.8 Inadditiontothismove,allemployeesin eachenterprisemightbegivenequalrolesindecidingwhat,where,andhowto produceandhowtodistributetheenterprise’ssurpluses.Subsequentstepswould entailenlargingeconomicdemocracybyincludingthoseresidentialcommunities interdependentwitheachenterprise.Workersandresidentswouldsharedemocratic powerovertheproductsandsurplusesproducedinanddistributedbyeachenterprise.

Changingtheclassstructureinthiswaywillnoteliminatecontradictionsor evencrisesarisinginaneconomy.Butpostcapitalistcriseswillbedifferent,willbe understooddifferently,andwillberespondedtoindifferentways.Andthese differencesmatter.Firstofall,criseswillbelesslikelytoemerge,asthecurrent onedid,fromarisingrateofsurplusappropriation,sinceworkerswhoaretheirown boardofdirectorswouldbefarlesslikelytoimposeorpermitsucharisingrate.What crisesdidarisewouldberespondedtomuchmorehumanelyandequitablyprecisely becauseoftheextensionofanewkindofclassdemocracyentailedbyeliminating capitalistclassstructures.Thecostsandpainsofcrisisresponsewouldbeequitably shared inprinciple, sincethatprincipleisembeddedinandfollowsdirectlyfromthe postcapitalistclassstructure.Thegrotesquecapitalistdisparitiesoftoday /when foreclosureandunemploymentstaggermillionswhileotherssufferneither,when somecollapsingindustriesreceivemassivegovernmentbailoutsandothersareleftto die,whensomemunicipalitiesandstatescontinuetoprovidebasicpublicservicesand othersdonot /wouldfarlesslikelyoccuronthebasisofapost-capitalistclassstructure. Thereisanotherkeydifferencetoconsider.Roosevelt’sNewDealimposedamassof regulationsuponcapitalismwiththeexplicitintentionofendingtheGreatDepression andpreventinganothersuchdepressioninthefuture.Theregulationstaxedand otherwiseconstrainedthewaysandmeansforcapitaliststopursuetheirgoals. However,thoseregulationsalwaysstoppedshortofchangingthecapitalistclass

8.Stillanotheranddifferentstepmightinvolvesurplusproducers /whereverlocated /putinto thepositionoffirstappropriatorsanddistributorsofsurpluseswhereverproduced.Inother words,insteadofsurplusproductionandappropriationoccurringinonespace /theindividual enterprise /theymayoccurindifferentspaces.Inmorecentralizedarrangements,surpluslabor appropriationcouldbeaggregatedacrossvariousorallsurplus-producingunits.Inthelatter arrangements,thecollectivityofworkerswhoproducethesurpluseswouldbethefirst appropriatorsanddistributorsofsurplusesaggregatedacrosstheseoperatingunits.Wehave workedoutthesocialconditionsforthesevariousformofappropriationanddistributioninour ClassTheoryandHistory (ResnickandWolff2002,16 /20).

structure.Theregulationsalwaysleftinplacethecorporateboardsofdirectorsrunning mostoftheU.S.capitalisteconomy.Thoseboardshadeveryincentive /giventheir responsibilitiestoshareholdersandtheirownself-interests /toevade,weaken,or undotheNewDealregulations.Moreover,asthefirstreceiversofthesurpluses producedinsideeachenterprise,theyalsohadtheresourcestoevade,weaken,orundo theNewDealregulations.AsweknowfromU.S.history,corporateAmericaresponded totheirincentivesandutilizedtheirresourcestoundotheNewDeal,especiallyafter the1970s,undertheregimesofReagan,BushI,Clinton,andBushII.Inapostcapitalist classstructureofthesortsketchedabove,itwouldbefarlesslikelyforenterprise boardstowantortobeabletosimilarlyunderminefutureanticrisisreforms.

AConcludingParable

Perhapswemightconcludewithaparallelparable.Foralongtime,whencrises occurredinsidesouthernU.S.slaveryandcausedgreatsufferingamongtheslaves, manydemandedgovernmentinterventiontoalleviatethatsuffering.Governmental responsessometimesentailedgreaterandsometimeslesserregulationsofslavery. Afterrepeatedcrises,agrowinggrouprealizedthatoscillationsbetweenmoreandless regulationofslaverydidnotworktopreventcrises.Theybegantomovetowardthe positionofthosewhohadalreadycometoopposeslaveryonmoral,ethical,andother grounds.Thatis,theybegan toseethebestsolutiontoslavery’srepeatedcrisesin theabolitionofslaveryitself.Today,afterrepeatedcapitalistcrisesfollowedby alternatinggovernmentregulation,deregulation,andreregulation,itisperhapstime forthevictimsofcapitalistcrisestomovetowardthepositionofthosewhohavecome toopposecapitalismonmoral,ethical,andothergrounds.Thatis,thetimehascome toacknowledgeanddebatewhether thebestsolutiontocapitalistcrisesmightnotbe theabolitionofcapitalismitself.

NoteonDataSources

WeareindebtedtostatisticalresearchbyJasonRicciuti-Borensteininutilizingand interpretingthedatasourcesbelow,asindicated.

SourcesofHourlyWageData

A.HistoricalStatisticsoftheUnitedStates(HSUS),SeriesD765 /778, ‘‘AverageHours andAverageEarningsinManufacturing,’’ 1890to1926

B.HSUS,SeriesD845 /876, ‘‘AverageDaysinOperationperYear,AverageDailyHours, andAnnualandHourlyEarnings,inManufacturing,’’ 1889to1914

C.HSUS,SeriesD830 /844, ‘‘EarningsandHoursofProductionWorkersin25 ManufacturingIndustries,’’ 1914to1948

D.HSUS,SeriesD802 /810, ‘‘EarningsandHoursofProductionWorkersinManufacturing,’’ 1909to1970

E.U.S.BureauofLaborStatistics,CurrentEmploymentStatistics, ‘‘AverageHourly EarningsofProductionandNon-supervisoryWorkersinManufacturing,’’ 1939to 2007,http://www.bls.gov/ces/

SourcesfortheConsumerPriceIndex

F.HSUS,SeriesD735 /738, ‘‘AverageAnnualandDailyEarningsofNonfarmEmployees,’’ 1860to1900

G.HSUS,SeriesD722 /727, ‘‘AverageAnnualEarningsofEmployees,’’ 1900to1970

H.U.S.BureauofLaborStatistics,http://www.bls.gov/cpi/

Theserieswasconstructedfirstbyconvertingthevarioushourlywageseriesinto realvaluesof2007dollars.Second,inyearsforwhichmultipleentriesofthehourly wageexisted,anaveragewastakensuchthat:

. 1890 /1914:averageofsourcesAandB

. 1914 /1919:Bwastheonlysource

. 1920 /1938:averageofsourcesCandD

. 1939 /1948:averageofsourcesC,DandE

. 1949 /1970:averageofsourcesDandE

. 1970 /2007:Ewastheonlysource

Next,thishourlyrealwageserieswasconvertedintoanindex,inwhich100wasset equaltotherealhourlywagefor1890.

SourcesforProductivityData

A.HistoricalStatisticsoftheUnitedStates,SeriesD683 /688, ‘‘IndexesofEmployee Output,’’ 1869to1969

B.U.S.BureauofLaborStatistics, ‘‘Industryanalyticalratiosformanufacturing,all persons,’’ http://www.bls.gov/lpc/

. SupersededhistoricalSICmeasuresformanufacturing,durablemanufacturing,andnondurablemanufacturingsectors,1949 /2003;ftp://ftp.bls.gov/ pub/special.requests/opt/lpr/histmfgsic.zip

C.U.S.BureauofLaborStatistics,SeriesIdPRS30006092,http://www.bls.gov/lpc/, 1987to2007

Theabovedatasourcesprovidetheannualpercentagechangeinthequantityof outputperhourforthemanufacturingsector.Theindexwasconstructedasfollows:

. 1890to1949,fromsourceA

. 1949to1987,fromsourceB

. 1987to2007,fromsourceC Year1890wassetequalto100.

BoardofGovernorsoftheFederalReserveSystem, ‘‘FederalReserveStatistical Release,Z.1,FlowofFundsAccountsoftheUnitedStates,’’ http://federalreserve. gov/releases/z1/;tableD2,BorrowingbySector,andtableD3,DebtOutstandingby Sector

References

Akerloff,G.A.,andR.J.Shiller.2009. Animalspirits.Princeton,N.J.:Princeton UniversityPress. Keynes,J.M.1964. Thegeneraltheoryofemployment,interest,andmoney.New York:HarcourtBraceJovanovich. Resnick,S.,andR.Wolff.2002. Classtheoryandhistory.NewYork:Routledge. Saez,E.2009.Strikingitricher:TheevolutionoftopincomesintheUnitedStates (updatewith2007estimates).http://elsa.berkeley.edu/ saez(accessedAugust 2009).

Teece,D.,G.Pisano,andA.Shuen.1997.Dynamiccapabilitiesandstrategic management. StrategicManagementJournal 18(7):509 /33.