The Fairy Tale of Capitalism: The 90 Percent

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Photo: http://mobilitylab.org/
A deep motif of FTC, the Fairy Tale of Capitalism, is that a wealthy Aristocrat getting richer benefits Workers and Society.


The 90 Percent consists of the 90 percent of the Society who have the least Wealth or Income. The 90 Percent includes nearly all of the Workers and the small business owners, and all of the poor people.

According to Thomas Piketty (“Capital”, Figure 9.8, p. 324), the aggregate income of the 90 Percent declined from a share of about 63% of the aggregate income of Society in 1970 to about 53% in 2010, in the United States. Per Emmanuel Saez and Gabriel Zucman, the aggregate wealth of the 90 Percent, as a percentage of aggregate wealth of Society, declined from about 30% in 1970 to about 23% in 2012. While many of the Wealth 90 Percent are also in the Income 90 Percent, there are some differences. Saez and Zucman find the Income share of the 90 Percent has fallen from 72% of the aggregate income of Society in 1970 to 60% in 2010.  Saez reports the 90 Percent share of Income was 49.5% in 2015.

David Ricardo, in writing “On Profit”, “On Value” and “Of Wages” (“Principles”, 1817, 1821), clearly supposes that increases in Capital (the Wealth of the Aristocracy) create a demand for Labor, and so Labor must have a value. Ricardo’s LTV Labor Theory of Value is famous and extensively discussed, though Stigler tells us Ricardo’s LTV was, like FTC, more a meditation than a theory. Ricardo writes

“in estimating the exchangeable value of stockings, for example, we shall find that their value, comparatively with other things, depends on the total quantity of labour necessary to manufacture them, and bring them to market.”

But we shouldn't misunderstand him to say the value of a product is the value of all the labor that went into producing it. Ricardo well understood variations in value due to perceptions of usefulness, exchange and the honorific value of useless consumption that Veblen described. However if we take that crude dumbed-down LTV that the value of a product is the value of the labor that went into producing it, then we must ask what is the value of the Labor of the Workers?
Graph: http://eml.berkeley.edu/~saez/SaezZucman2016QJEAppendix.pdf

Labor is the productive activity of the Workers. Nearly the entire Income of the 90 Percent arises from compensation for the Labor of the Workers. Then half the Income of Society is the current value of Labor. Rarely will any two people ever have the same income. Some will have more and some less. A tenth part of the people will enjoy an income exceeding the highest income of the 90 Percent. Still, we contemplate, why would not the value of Labor be 75% or 80% of the Income of Society?

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Thomas Piketty, “Capital in the Twenty-First Century” (2014, English translation) http://amzn.to/2fJg7Oi

Emmanuel Saez and Gabriel Zucman, “Wealth Inequality in the United States since 1913” (The Quarterly Journal of Economics, May 2016)  http://eml.berkeley.edu/~saez/SaezZucman2016QJE.pdf http://eml.berkeley.edu/~saez/SaezZucman2016QJEAppendix.pdf

Emmanuel Saez, “Striking it Richer” (June 30, 2016) http://eml.berkeley.edu/~saez/saez-UStopincomes-2015.pdf

George J. Stigler, “Ricardo and the 93% Labor Theory of Value” (American Economic Review, Vol. 48, No. 3, June 1958) http://www.econ.nyu.edu/user/bisina/stigler-labor.pdf

Thorstein Veblen, “The Theory of the Leisure Class” (1899) http://amzn.to/2fJAzyz

David Ricardo, “On the Principles of Political Economy and Taxation” (1817, 1821) http://www.econlib.org/library/Ricardo/ricP.html

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