A Marxist Economist Explains How Class Works

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I had to transcribe this excerpt from an interview with the Marxist economist, Richard D. Wolff. He is by far one of most influential American thinkers alive today and is currently a professor at the New School University in New York City. Say what you want about Marxists, but they really do know how to explain complicated topics well, and they really describe things in ways that everybody can clearly understand.

If you would rather listen than read, the audio clip for this interview is at the bottom of this page.

“The way class works in our society can be best understood if you think about how a business works. In most businesses, the people who do the work come five days a week, use their brains and muscles doing what the employer sets them as tasks, with the equipment and materials the employer provides. At the end of the day, they go home and the employer keeps the fruits of their labor, which the employer then sells and the goal of the employer is to get more money when he sells the output then it cost him to buy the tools, equipment, raw materials and hire those workers.

Class is this difference between those who do work, the overwhelming majority, and those who gather profit into their hands. The way our society splits up the output leaves those who get the profits in the position of deciding and figuring out what to do with them. We all live with the results of what a really tiny minority in our society decide to do with the profits everybody produces. The profits in our society are huge. When you think about 500-1000 large corporations in the United States that do the overwhelming bulk of the business, you realize that into the boards of directors of these companies flows a huge part of what you might call “discretionary income” in this society.

If these profit earning companies decide they can make more profit by adopting a technology which has the unfortunate result of polluting the air or the water, corporations will typically do that because the profit is more important to them than the social consequences that basically they don’t have to live with and don’t have to pay for, and so you’ll get decisions about how to use the profits which is a social disaster in terms of the health — mental and physical — of other people. Having a small group driven by profit, gathering into their hands the “discretionary” funds, shapes everything about the way we live.

Class is one of the most repressed discourses in this country. Many Americans insist that we’re all in the middle class — that if there are a handful of desperately poor people at one end and maybe a handful of desperately rich ones at the other — they’re really a tiny footnote to a vast middle. This is a way of pretending that class differences — wealth, power, corporate structure — somehow aren’t there or don’t matter. They pretend that the issue isn’t there or it doesn’t matter or we all have it under control — none of which are true.

The overwhelming majority of people have to go to work five days a week to live from the income their work provides and a very small minority have enough wealth to live off the wealth. The richest 10-20% of our country which owns half the wealth — that’s why they’re the richest. They get rent on their land, they get interest on their money, they get all of these rewards whether or not they do an ounce of labor ever. Where the mass of people can only live by their labor. This is a fundamental inequality that infuses everything about our culture. The lip-service as a nation we give to equality, to democracy, to equal opportunity — are radically undone by the reality of the class structure.

So, class is going to force you into unpleasant recognitions and confrontations, with a reality that has to be changed. Foreclosure in the US today is in fact a perfect example. Over the last 30 years we have faced a phenomenon we’ve never had before in the history of the US. We have had a rising in real wages in America, roughly from the beginning of our history up until the 1970s. You worked hard and you got more money in your wage envelope at the end of the week — it was true for 150 years and that’s really amazing, and no other country did that. It stopped in the 1970s because of computers replacing people, because of American companies moving abroad where they could pay lower wages, because of a mass movement of women into the laborforce and because of immigration — and we went from a country with a chronic labor shortage to a country with a chronic labor over-supply.

Employers no longer had to raise wages to keep workers working, to keep them happy, to keep them employed and as a result the American working people went into a kind of prolonged psychic shock. Their wages weren’t rising anymore and so what they did, was they turned to another source of money to realize the American Dream that they had been culturally developed to hope for, to expect, to promise to their kids. They borrowed money like crazy and the business community of the US saw in the borrowing of the American working class a fantastic market to go after.

You know, in the 1970s, at the beginning, the only people who had a credit card were wealthy people or folks on a business expense accounts.  Starting in the 1970’s we gave credit to the mass of Americans. Everybody gets a credit card and everybody can go to the bank to borrow to buy a home. Mortgage debt and credit card debt explodes. It was a money-making extravaganza. We saw all the wealthy come together to get involved in this money. Building houses and lending workers at huge interest rates the money with which to buy the new and expensively built homes.

Wealthy people poured their money into companies that built these homes, furnished these homes, decorated these homes and you have a literal explosion of profitability, but of course, you can’t keep lending to working people if their underlying economic situation isn’t improving — so it was only a matter of time until the extra borrowing reached a limit of underlying, frozen, stagnant wages. That was hit in 2007. Millions of Americans could no longer afford the houses that they had borrowed to buy and the foreclosure crisis represents the rage and anger of the wealthy class. If the underlying people they had lent money to can’t pay for them, they’re going to take those houses back, throw those people out of their homes and try to find another way to make money.

Here’s a perfect example of the profit motive creating a housing boom that becomes a bust and that now to recoup the money of the minority who invested in it, requires millions of people — the majority — to literally lose their homes. Producing in the US, in 2010 and 2011, a society that has millions of empty homes side-by-side with millions of homeless people. Enormous pressure was placed on the US government by big businesses — the businesses that produce homes, that clear land, that produce construction equipment,  the businesses that produce furniture that goes into the homes — all of those companies had put enormous pressure on the government for the last hundred years to stabilize, to stimulate everything having to do with the home construction business.

They asked the government to subsidize mortgages, which we’ve been doing in America since the 1930s. They wanted the government to help individuals buy homes because their well-being as corporations depended on selling those homes, selling the furniture, selling the equipment that dug the ground for the homes, etc. So the whole corporate structure of the US has been geared to making money by developing the private home business in the US. They are the ones who have made the major difference in all of it.

Every house, virtually, bought and sold in the US over the last 25 years with very few exceptions — was paid for with a mortgage loan. That is, the buyer of the home goes to typically a bank and borrows the money with which to buy the house, and then has to make a long-term repayment to the bank for having borrowed that money. As a loan it has two sides: the borrower and the lender. In our kind of capitalist economy it is the rule that the banker has the social responsibility of properly assessing risk.

If billions upon billions of dollars were lent to people who couldn’t pay it back, then the culpability is at least as much on the side of the bankers who made those loans, as it is on the borrowers who took them out. Borrowing vast amounts of money to buy homes took off in the 1970s, 80s and 90s. It had not happened before. So if you’re going to blame the victim, you have to explain why the victim undertook these blame worthy activities just then, and not, for example, in the previous 150 years.

And now the most important point which I made earlier. Starting in the 1970s the American working class stopped getting real wage increases. So we have a desperate working class that undertook that borrowing because they had to. Because even though they became more and more productive for their employers, their employers did not raise their wages for the last 30 years. That’s why they borrowed money and that’s why they borrowed too much money. And had the employers not taken advantage of the market to stop raising wages, had they simply continued to raise wages as the American employers had been doing for the 150 years before the 1970s — there would not have been this explosion of borrowing and there would not be the foreclosure crisis now.

So the blame for all of this is really not to be found with the individual borrower, or for that matter, even with the individual banker. We have a system that worked in such a way as to drive the masses of people to borrow what they shouldn’t and to drive the corporate sector to invest and lend in ways they shouldn’t. The fault is in a system that makes people behave in ways they all come to regret. Capitalism here worked better than it did in other countries for a long time and it accumulated a lot of wealth. Over the last 30 years it hasn’t raised the wages the way it had for 150 years before. The confrontation with the inability of capitalism to deliver the goods was postponed by having Americans work way more hours than other people in other countries and by having American workers take on a level of debt no working class, ever anywhere, had ever seen before but we’ve now run out.

We can’t do anymore physical hours of work and we can’t borrow anymore money because we’re not able to pay what we’ve already borrowed. We’re now going to have to face it and I think what we’re going to see is an American working class that is now going to rediscover class and realize that they have to question a system that works this way. They’re going to demand fundamental changes and when they do, and as they do, they will rediscover the language of class, relearn it from the working people in other countries who never forgot it and it will re-enter the discourse and the debates of American society, and probably with vengeance.”♦♦


These details are from his website:

Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City.

Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a Visiting Professor of Economics at the University of Paris (France), I (Sorbonne). Wolff was also regular lecturer at the Brecht Forum in New York City.

Education

BA in History from Harvard College (1963);
MA in Economics from Stanford University (1964);
MA in History from Yale University (1967); and a
PhD in Economics from Yale University (1969)

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