Who killed the middle class? (1/2) – EconomyMorning


What is the exact definition of the middle class… what is its specific role in the economy… and is it not falling victim to the “class struggle”?

Considering how often the middle class is invoked by politicians and economists, one would think they have a solid understanding of it… Alas, it’s not that simple.

The conventional point of view is that the middle class is defined by its income, its education, or the type of trade it does. So many superficial attributes that do not take into account the concrete differences between the working class and the middle class.

To be sure, the middle class earns more, has higher degrees, and tends to occupy white-collar jobs rather than blue ones.

But higher education and higher wages do not automatically guarantee a middle class role in the economy… a guarantee that a white collar worker position cannot offer either.

None of this allows the individual to rise up the social ladder, moving from almost zero capital ownership (working class) to significant ownership of productive capital (middle class).

Fundamentally, the middle class is a means of turning labor into capital through savings and investment. The traditional social lift, which makes it possible to move from the working class to the middle class, is linked to the capitalization of work: time and savings are invested in higher education, which makes it possible to capitalize the work to come by increasing its productivity.

In other words, what distinguishes the working class from the middle class, it is the latter’s capacity to transform its labor into capital, while the labor of the working class only allows consumption to be financed.

Let’s take a closer look …

The blind spot of Marxism

The working class is not defined by its degrees or the type of work it does, but by limited access to the means to turn its labor into capital.

The classic Marxist point of view draws a clear line between labor and capital: the proletariat works in the factories owned by capitalist industrialists. The latter depend on monopoly capital controlled by commercial / investment banks.

The small business class – craftsmen, traders, professionals etc. – is only the wedge that separates the dominant categories of labor and capital.

From this point of view, the exploitation of labor is the dominant force of capitalism. If labor is indeed exploited in many cases, this diagram overlooks an important dynamic: the essential role of credit, debt and middle-class consumption, which generates profits for the large holders of capital.

Low-wage workers benefit their employers, but not banks or those who profit from the sale of goods and services to better-paid workers, i.e. the middle class.

Debt is immensely profitable, so low-wage workers have a limited profitability pool. The financial services are very good at eating the wool off the backs of the working class with payroll advances, check cashing services, sky-high auto loans, ridiculously high late fees and premiums.

Yet, I repeat, no matter how hard you squeeze these low-paid workers, you can only extract a limited amount of vital substance.

The higher and more secure wages of the middle class provide a windfall of longer-term profits from the debts they incur. For example…

Student loans, to get the degrees deemed necessary to be part of the middle class, car loans, mortgages to buy a house, and consumer debt accessible to the middle class: ski trips, cruises, restaurant dinners etc.

In other words, without a healthy, debt-capable middle class that borrows and spends freely, modern capitalism stagnates. Remember: Profits come from the high level of debt and ambitious consumption that the most insecure, with lower wages, cannot afford.

A new bondage

But here it is: most of the middle class debt comes from the desire to turn work into capital through higher education (student debt) and property (mortgages).

However, the purchasing power resulting from the wages of the middle class decreases and incomes become precarious (employers deciding to offload health and pension costs to their employees and replace them with contract workers). The ability of the middle class to borrow and consume more is therefore starting to fail.

Worse yet, the traditional pathways to ownership of productive capital are no longer reliable. Higher education diplomas are no longer the guarantee of stable and generous salaries.

In an economy addicted to the real estate bubble, property is also less a method of saving, and more of a token in the big casino that is this financial bubble.

Members of the middle class who wish to become owners of productive capital are condemned to debt bondage. Repayment is always guaranteed, but the benefits gained from debt incurred are plagued by sudden collapses in demand for degrees or assets obtained by going into debt.

To be continued…

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