The Standard Of Living

The Standard of Living

Granted that great differences exist in the distribution of wealth and income, what do these differences mean when trans­lated into the life of the people? One of the first obvious effects is that differences in income make possible different planes or standards of living. Some confusion exists as to the exact defini­tion of these terms. The standard of living at one time meant actual living conditions. Later standard more frequently meant the ideal or desirable condition of life that people wanted. Re­cently, economists have been using plane of living to designate actual conditions, while standard of living has been reserved for the theoretical or ideal life which should be obtained by certain groups of individuals.

In 1935-36, at prices which prevailed for that year, it was estimated that, for a family of four, $1000 per year would be needed for bare subsistence, and $1500 per year for a standard of health and decency. The National Resources Committee sur­vey revealed that 41.8% of all American families received less than the minimum of subsistence, while 64.8% received less than enough to provide for health and decency. These percentages, of course, include families on relief. Subtracting the 10% of all American families which were on relief in 1935, the proportion of the American population living below reasonable standards is considerable. Even in more prosperous times, 1929 for example, 20% of the population had incomes of less than $1000, while 40% had incomes of less than $1500. Adjustments upward in the money equivalents of the subsistence and the health and decency standard would put more families below the minimum standards.

The economic consequences of the inequalities in wealth and income are extremely important. Many of these are connected with the business cycle and will be discussed in the following chapter. However, in the early part of the 18th century the close connection between income and economic progress was discussed by Bernard Mandeville in a poem called The Fable of the Bees. He pointed out that while saving and being frugal were calcu­lated to increase the estate of the family, such was not the case with the nation, since a balance of spending and saving needed to be maintained if stagnation was to be avoided. Malthus in i 82 i was even more explicit. He said, "We see in almost every part of the world vast powers of production which are not put into action, and I explain this phenomenon by saying that, from the want of proper distribution of the actual produce, adequate motives are not furnished to continued production." The wide variations in income he thought led to the over-saving of some and the under-consumption of others, but this was bad for a country since it impaired the usual motives of production.

Adam Smith and his followers reasoned from the analogy that what was good for a family must be good for the nation, as ex­pressed by Smith when he said, "What is prudence in the conduct of the private family can scarce be folly in that of a great king­dom." They believed that economy and frugality throughout the nation were desirable. It is clear, however, that if everyone saves and consumes at a minimum, the incentive to increase production disappears. John Maynard Keynes in recent years has done much to clarify the relationship between income, consumption, saving and investment opportunities. He points out that as in­come increases there arises an increasing gap between income and consumption which remains as savings. With the rise in incomes the amount of saving increases, or, as he puts it, "the propensity to consume" decreases. Under such circumstances the lack of consumption decreases the need for new instruments of produc­tion. Consequently investment opportunities decline as savings increase.

In addition to its effects upon economic processes directly, the unequal distribution of wealth and income has serious implica­tions for the social structure as a whole. The vast differences in wealth and income have divided society into competitive eco­nomic classes. Although the activities and interests of people in America have not been regimented by their membership in one economic class or another, there is no doubt of the tendency for persons deriving their income from a similar source to unite for economic and political action. Their main purpose, of course, is to increase their share of the national income.

Veblen viewed society as a pyramided structure of people on various economic levels; each level aping the mode of life of the group just above, and all of them imitating directly or at second hand the characteristics of the leisure class at the top. Since the basis of distinction between the economic levels was pecuniary, that is, expressed in money terms, and since the distinction of the leisure class was its ability to engage in wasteful and conspicuous consumption without work, the tremendous stress placed upon income in society was inevitable. The ruthless competition for an increasing share of the world's goods was the dynamic force of modern civilization. Where a society so motivated would end, Veb­len did not say. Indeed, one might justly conclude that Veblen saw the evolution of human institutions as utterly painless. Karl Marx, on the other hand, as we have already noted, contended that the economic struggle of class against class was the chief characteristic of history, and that history could only be understood in terms of the class struggle. Contrary to Veblen, however, Marx believed that a pattern of evolution was inherent in the class struggle. In every stage of civilization the struggle resulted in a new synthesis of the elements of society in a more productive economic order. The transition from capitalism to communism was the expression of. the class struggle, because under communism economic in­equalities would be dissolved. From each according to his ability to each according to his needs has been the economic ideal of the communist state. This aim stands in striking contrast to the most widely accepted statement of present distribution, that each factor and each person tends to receive in the long run the equivalent of what he has produced. There is no valid evidence to prove that this theory of distribution works out in practice; in fact, the very reverse is often the case.