Yes, most Americans own capital
But our housing-based system of capital ownership is unsustainable.
The other day, fellow Substack blogger Matt Yglesias made the banal and completely true observation that most Americans, over the course of their lives, will be both workers and owners of capital:
This deeply upset many people on the left, leading to many fiery Twitter debates. But their objections were often weak and vague, because the statement is so obviously banal and true. And not just true in the literal, definitional, “gotcha” sense either, but in a deep and important sense that can help explain much of the voting patterns we see in the U.S. — and, I think, help predict where the country’s political economy might be headed.
Most Americans really are little capitalists, but — as I’ll explain in a bit — their capitalist way of life is under threat from its own contradictions.
Shopkeepers, stockholders, and homeowners
There are several common meanings of the word “capital”. Some use it to mean “cash” (for example, the “working capital” of a business). Some use it to mean “financial assets”. But let’s stick with the classic definition here. The classic definition of “capital” is just “the means of production” — the tangible assets that are used to produce valuable goods and services in the economy. That would include things like machine tools, factory buildings, computers, construction equipment, delivery vehicles, office buildings, software, and so on.
When economists use the word “capital”, this is exactly what they mean — they try to remain faithful to Karl Marx’s definition. Some economists generalize the term to include things like “human capital” (knowledge and skills), “social capital” (human networks), and other intangible things that assist in production. But for the purpose of this post, we can just think about good old physical capital — tangible physical or digital assets that help create value.
One way of owning capital is to own your own business. And lots of Americans do this! At any time, about one out of ten Americans owns their own business. Looking at the World Bank’s data, we can see that U.S. business ownership is fairly high compared to other developed countries, and is above the global median (the y-axis here is “Established Business Ownership Rate, % Of 18-64 Population”):
But this dramatically understates the percent of people who will ever own their own business over the course of their lifetime. That’s impossible to know, of course, since we don’t know what will happen in the future, and rates of business ownership change. But we can get a general idea from looking at surveys of how many people have tried to start a business in the past. Global Entrepreneurship Monitor reports that 55% of Americans have started a business in their lifetime. And since the average lifetime is not yet over, we can assume that the percent of Americans who will ever start a business is even higher than 55%.
Now, many of those businesses fail — about half within the first five years. And many are probably humble undertakings like Etsy stores, gas stations, direct sales businesses, and so on. But this doesn’t change the basic fact that a very substantial percent of Americans — perhaps even most — will eventually try their hand at the business thing at some point. And since practically every business has some kind of assets to its name, this will make them owners of capital.
The second way people can own capital is to own a small piece of a big business — in other words, stock. You can own individual stocks through a brokerage account, or you can own them indirectly through a retirement plan like a 401k or 403b. Gallup asks people about this every year, and finds that although the percent of stock ownership has gone down a bit, it still represents a majority of American adults:
But again, this is an understatement because it only looks at one snapshot in the life-cycle — one “cross section”, as the data folks say. Lots of people are too young to have retirement accounts or even significant savings. And some old people may have cashed out all their risky stock holdings and now hold only bonds. So the true lifetime percentage of stock ownership is going to be much higher — most Americans will eventually own some stock. And for the middle class, this will end up providing a nontrivial portion of their retirement income.
Now let’s think about the most important part of capital ownership: Housing. Every government and intergovernmental organization counts houses — including owner-occupied houses — in a country’s capital stock. The rationale for this is that your house is part of the means of production — it produces “housing services” by giving you a place to live. Sure, living in your house doesn’t provide you with cash income, but it does let you keep a lot more of the cash you get from your job or other sources — because you don’t have to spend it on paying rent!
A majority of American households — consistently a little less than 2/3 — are homeowners:
And again, the total lifetime homeownership rate is going to be much higher — probably over 90% for the Baby Boomers.
Of course, most Americans don’t think about the technicalities of “production of housing services”. And to people on the left, this might seem like a joke — obviously the average American homeowner is not the top hat wearing factory owner that the word “capitalist” brings to mind. But most Americans do understand that housing acts a lot like stocks in terms of being a financial asset — you buy a house today, and it (usually) gets more valuable over time. And that has big implications for their financial interests. Owner-occupied housing is the primary repository of American middle-class wealth:
Because ultimately, what we care about in terms of political economy — and what Yglesias’ tweet was about — is how people see their class interests aligning.