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Middle class in capitalism

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kololski posted on Sat, Dec 17 2011 7:51 AM

Hi,

I'm looking for (and right now I cant find anything appropriate) some 'austrian' literature which shows  :

1) the necessity of existence big amount of middle class in society (those who have got small capital, have got small businesses etc.)

2) that middle class get 'the most' in capitalism.

And it should be rather a book or economic paper than just short articles (but it would be helpful too);)

Thanky you for help in advantage!

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You're going into the research looking for specific evidence to support some preconceived notion you have?

I suggest you reframe your purpose to "How does capitalism relate to the existence of the middle class (whatever that means)?"

This might include the task of defining what a middle class is for you and how this definition will square with the definitions of people you argue with.

P.S. I also suggest asking how government intervention relates to the middle class.

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Austrian class analysis (essentially Hoppe and Rothbard) doesn't really deal with upper, middle and lower class; instead, its a division between producers (workers, managers, capitalists) and parasites (governments, theives, net welfare recipients).  This isn't to say that you won't find reference to the middle class in Austrian literature, but it will probably be treated more 'historically' than theoretically.

As for the details of what you're looking for:

1)  Small businesses will constantly come into and go out of existence in a dynamic market order, so at any given moment there's no reason why the number of small businesses couldn't be relatively low.  What's important here, I think, is that small business and a wide distribution of capital among many individuals are permitted by whatever legal system is in place.  

2)  My understanding is that vis a vis less capitalistic societies, the poor reap the most material benefits in the form of lower prices.  Of course everyone else benefits from this as well, but it is comparatively higher for the lower class.

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bbnet replied on Sat, Dec 17 2011 12:04 PM

Income distribution in a free market will likely resemble a gaussian type bell curve since it represents the most efficient allocation of income. Distotions in the market will tend to flatten the bell and/or raise one or both ends.

Here is a graph based on US census data:

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I don't know of any Austrian literature that deals with income "brackets" or "classes". The fact is that any such division is arbitrary not only in respect to the nature of the brackets themselves but also in respect to who inhabits them. Many people start out in the lower income bracket and, over time as they become more experienced and skilled, move up to higher income brackets. Others run businesses that earn well for a time but later go bankrupt, throwing them from the upper income brackets down into the lower income brackets. So, there is no absolute "middle class" "upper class" and so on.

Clayton -

http://voluntaryistreader.wordpress.com
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'bbnet' hit 'the nail on the head'. I want to show that in capitalism income distribution has got sort of a  normal distribution.Thats why I would like to find some 'austrian' speaking of advantages of having large 'middle class' - in a society where 'average guys, families' are the most.

 

And I dont want to impose that it is THE BEST situation - I just want to study this process.

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I want to show that in capitalism income distribution has got sort of a  normal distribution.

What if it doesn't? Are you willing to adjust your inflexible, ex ante goal to the facts? Or are you just interested in promoting what you think at the moment is a good idea... at any cost?

Thats why I would like to find some 'austrian' speaking of advantages of having large 'middle class' - in a society where 'average guys, families' are the most.

In the minarchist or private law society advocated by Austrians, it would be difficult or impossible to know what the "income distribution" in fact is. Without a Leviathan State threatening to hit anyone over the head who does not completely disclose all their sources of income so that they can be taxed, the idea that we could know what the "income distribution" would be is laughable.

And I dont want to impose that it is THE BEST situation - I just want to study this process.

Then be prepared to accept the results, whatever they are. It seems to me unwise to approach the problem with some kind of "distribution" that you expect to see.

Clayton -

http://voluntaryistreader.wordpress.com
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I want to show that in capitalism income distribution has got sort of a  normal distribution.Thats why I would like to find some 'austrian' speaking of advantages of having large 'middle class' - in a society where 'average guys, families' are the most.

If income falls into a normal distribution, then a large middle class is just what "is" - its not a matter of being advantageous.  Its seems like you are saying that since the income is concentrated in the middle, we need to have people there to go grab it up - but the reality is if no one was there to get it, then it wouldn't be distributed that way in the first place.  

they said we would have an unfair fun advantage

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bbnet:
Income distribution in a free market will likely resemble a gaussian type bell curve since it represents the most efficient allocation of income.

Could you expand on this, please? What makes the normal distribution the most efficient allocation of income?

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bbnet replied on Sun, Dec 18 2011 10:29 PM

Perhaps 'efficent' isn't the best word, replace with 'likely'. 

Assuming that competition in a free market economy would be more perfect than in a mixed market economy and that  that all actors would have greater liberty to negotiate wages and prices, then the ratio of economic profits to normal profits would favor the latter and there would be a less fluctuation of wages across firms for particular types of employment; which together would result in smoother data sets.

Assuming that a free market economy is made up of a lerge variety of countless unique exchanges between many actors then from a distance the activity would appear seemingly random and chaotic.

When plotting many seemingly random samples from many relatively smooth distributions, the plots tend to resemble a bell curve.

This isn't to say that it would be a symetrical bell, I tend to think a free market would favor the right side of the bell, moving the middle towards higher income.

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Wheylous replied on Sun, Dec 18 2011 10:38 PM

Should we expect the income/wealth (I know, big difference, but I don't currently feel like thinking) curve to mirror some productivity/intelligence curve? I know I'm trying to play God with these variables to find correlation, but it's still interesting :)

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there would be a less fluctuation of wages across firms for particular types of employment; which together would result in smoother data sets.

This is utter tripe. There is no reason to believe this at all.

I think what you're trying to talk about is what Austrians call the Evenly Rotating Economy (ERE). This is not "capitalism", it's just a thought-experiment to illuminate certain economic principles that can not be exposited unless you hold the conditions of ceteris paribus.

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Here is a short video that answers your question. 

 

http://www.learnliberty.org/content/are-poor-getting-poorer

 

As for the necessity of a large amount of middle class in society, all that needs to exist are people who strive to improve their current conditions by means of improvement and innovation, rather by force.   It doesn't matter what lable we put on these people, the middle class is defined by different people in different ways.   There is no objective definition of this group of people.   The middle class does not act as an "entity" but rather as a group of individual actors.   Even if the people in the middle class could be nailed down, as conditions changed and needs were filled, that definition would be constantly changing.   

In regards to the Middle Class getting the "most" out of  capitalism, see the link for the video that I included above.  It gives you a direct answer to that question, it easy to understand and fun to watch. 

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bbnet:
Perhaps 'efficent' isn't the best word, replace with 'likely'.

Okay, that's fine - but those two words carry very different meanings.

bbnet:
Assuming that competition in a free market economy would be more perfect than in a mixed market economy and that  that all actors would have greater liberty to negotiate wages and prices, then the ratio of economic profits to normal profits would favor the latter and there would be a less fluctuation of wages across firms for particular types of employment; which together would result in smoother data sets.

Are you referring to the (neo-)classical notion of "perfect competition" here? Regardless, I understand what you're saying, but I don't see what the causal factor(s) would be.

bbnet:
Assuming that a free market economy is made up of a lerge variety of countless unique exchanges between many actors then from a distance the activity would appear seemingly random and chaotic.

When plotting many seemingly random samples from many relatively smooth distributions, the plots tend to resemble a bell curve.

This isn't to say that it would be a symetrical bell, I tend to think a free market would favor the right side of the bell, moving the middle towards higher income.

Are you talking about the central limit theorem here?

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