All Commentary
Sunday, June 1, 1997

The Futility of Class Warfare

Clearing Government-Erected Barriers Would Do More to Foster Progress


With the collapse of socialism both as a theory and as a practical system of economic organization the world over, one might expect the rhetoric of class warfare to subside as well. But class warfare is alive and well in prominent academic circles and the mainstream national media.

It’s a familiar refrain: capitalism is doing itself in by concentrating wealth in the hands of a few. Saving the system from its own sins requires an activist government to intervene to make sure more people get their share of the economic pie.

In a recent issue of America magazine, Jeffrey R. Gates bemoans the fact that too many Americans have too little wealth. The solution, he says, is for the government to devise a grand plan, a national ownership strategy that will spread the people’s wealth around according to some centrally planned formula.

Imagine that. The same government that can’t manage its own fiscal affairs, that squanders billions of other people’s dollars in subsidies for corporations and foreign regimes, that wasted a trillion more in a counterproductive war on poverty, is now supposed to preside over what Mr. Gates calls a national ownership strategy for the American people.

Gates cites, among other sources, a 1995 study of New York University professor Edward Wolff, who argued that wealth is more concentrated in the hands of a few than at any time since the 1920s. Wolff’s study was severely flawed, however, because of its false assumptions and many omissions. For example, it gave little attention to the shifting patterns within income categories.

In an economy with great mobility, people simply do not remain in the same top and bottom income categories over time. Treasury Department data show that of the U.S. households in the bottom one-fifth of incomes in 1979, only 14 percent remained there by 1988. Meanwhile, 35 percent of 1979′s top one-fifth had fallen from the top by 1988.

Wolff’s study found a widening gap in the distribution of wealth in part because, amazingly, it excluded the value of pension plans! When wealth is measured more broadly, as it should be, to include pension benefits, home equity, and autos, the wealth gap reduces to a tempest in a teapot.

Many recent economic studies refute the rich are getting richer while the poor are getting poorer scenario that Gates, Wolff, and others present as fact:

• John Weicher of the American Enterprise Institute has shown that the portion of the country’s total wealth owned by the richest one percent of Americans remains virtually unchanged since 1963. Ownership of mutual funds and retirement accounts among average households has soared in the last 20 years.

• Kenneth Deavers of the Employment Policy Foundation has shown that between 1970 and 1990, the share of families with real income of less than $35,000 fell about 9 percent at the same time the share making more than $50,000 rose by more than 34 percent.

• Benjamin Schwartz in World Policy Journal recently reviewed the long-term history of income inequality in the United States. He found that income inequality, even of an extreme nature at times, has always been a feature of the U.S. economy, throughout its two centuries of producing an ever higher standard of living for the vast share of the total population. In fact, income inequality is lower today than it was in 1890, when 12 percent of the population owned about 86 percent of the country’s wealth.

• W. Michael Cox and Richard Alm tracked a representative group of Americans to find out what happened to their incomes. The period they studied was 1975 to 1991—a wider span of time than that represented by the Treasury Department numbers cited above. Cox and Alm found out that the poor didn’t get poorer at all. In fact, only 5 percent of the people whose income comprised the bottom fifth in 1975 were still in that bracket in 1991. Sixty percent of them rose all the way to the top 40 percent of all earners.

If inequality of wealth is a problem, there certainly is a far more fruitful solution than forcible redistribution of income. The answer, which free-market economists have persuasively championed, is to remove the endless barriers to entrepreneurship erected by all levels of government.

Government drains off more than a hundred billion dollars of productive capital each year with its deficit spending, for instance. Onerous taxes, regulations, and bureaucratic red tape keep many aspiring entrepreneurs from getting a start and employing others who need work. Welfare policies pay millions to stay in poverty. The government education monopoly spends a fortune and all too often guarantees that children are ill-prepared for a productive future.

The fact is, when people have problems accumulating capital, it’s not capitalism’s fault. It’s the fault of a system that puts political obstacles in the way of economic progress. Americans have erected so many roadblocks over the years that it is a great tribute to enterprise that so much wealth has been created anyway.

Interventionists, unfortunately, have a knack for refusing to take responsibility for their own handiwork. They propose A and when it fails, they propose B to deal with the problems that A created. B, of course, is yet another intervention and when it flops, they propose intervention C, and on and on. It seems that actual effects and results don’t matter, that mere good intentions are sufficient to avoid culpability for bad advice and move on to the next reckless recommendation.

Class-warfare warriors are hung up on simplistic prescriptions for government action that reduce to redistribution of income. They should recognize the futility of that approach and embrace a fresh one—the approach that starts with the assumption that the way to foster broad-based economic progress is to clear the decks of counterproductive, government-erected barriers to progress.


  • Lawrence W. Reed is FEE's President Emeritus, having previously served for nearly 11 years as FEE’s president (2008-2019). He is also FEE's Humphreys Family Senior Fellow and Ron Manners Global Ambassador for Liberty. His Facebook page is here and his personal website is lawrencewreed.com.