By Charles Hugh-Smith and cross-posted from PeakProsperity.com,
In the modern era, the phrase Class War is rooted in the socialist/Marxist concept that the conflict between labor (the working class) and capital (owners of capital) is not just inevitable – it’s the fulcrum of history. In this view, this Class War is the inevitable result of the asymmetry between the elite who own/control the capital and the much larger class of people whose livelihood is earned solely by their labor.
In Marx’s analysis, the inner dynamics of capitalism inevitably lead to the concentration of capital in monopolies/cartels whose great wealth enables them to influence the government to serve the interests of capital. Subservient to capital, the laboring class must overthrow this unholy partnership of capital and the state to become politically free via ownership of the means of production, i.e. productive assets.
This Class War did not unfold as Marx anticipated. The laboring class gained sufficient political power in the early 20th century to win the fundamentals of economic security: universal public education, labor laws that prohibited outright exploitation, the right to unionize, and publicly funded pensions.
(The alternative explanation for this wave of progressive policies is that prescient leaders of the capital/state class ushered in these reforms as the only alternative to the dissolution of the status quo. Labor reforms began in Germany and Great Britain in the late 19th century Gilded Age, and another wave of reforms were enacted in the decade-long crisis of capitalism in the Great Depression.)
Though the conventional view is that this failure of capitalism to devolve as expected proves Marx’s analysis is without merit, it can also be argued that the state-capital partnership was far more flexible than early Marxists anticipated: sharing enough of the wealth generated in the industrial revolution with the laboring class to enable a stable, productive middle class benefited the state-capital class by creating a new strata of consumers (of goods, services and credit) who greatly enriched industrial and financial capitalists and the state, which could raise unprecedented sums in payroll and income taxes.
Basking in the luxury of hindsight, it’s easy for us in the present day to forget the often-violent struggles between labor and capital that characterized the early 20th century: anarchists bombed Wall Street, and the Powers That Be sent in armed forces to suppress efforts to unionize entire swaths of industrial workers.
While the middle class of professionals, small business owners, traders and entrepreneurs can be traced back to the birth of modern capitalism in the 15th century, the emergence of a mass middle class of tens of millions of wage-earners with the purchasing and borrowing power created by stable employment was a unique feature of 20th century capitalism.
In effect, the middle class was the Grand Truce in the class war: the state’s imposition of regulations and a social safety net on unfettered capital resolved labor and capital’s primary conflict by sharing the output of capitalism’s bounty.
Many assets had to be put in place to enable this vast distribution of wealth to tens of millions of laborers: a cheap, abundant source of energy (fossil fuels—coal, oil and natural gas), an efficient, accessible transportation network, a financial system that could extend credit to millions of households, and a government with the tax revenues and resources to fund public works that were too risky or out of reach for private-sector capital.
In the latter third of the 20th century, the permanence of this version of state-capitalism was unquestioned: laborers would always be able to enter the middle class, and opportunities for advancement would always be open to those with middle class access to education and credit.
There was no compelling reason to believe this consensus was about to fray and potentially dissolve, and no reason to think that rather than being a permanent feature of advanced capitalism, the middle class was a one-off based on cheap energy, surging productivity and the boost-phase of credit expansion.
But now income and wealth inequality are rising sharply, and capital is pulling far ahead of labor, which is creating a vast and quickly-widening divide between the classes…