The late 19th century, supposedly the golden age of laissez-faire capitalism, was actually a nightmare for capitalists. They whined incessantly about their falling profit margins and, more significantly, about how the American people didn’t appreciate their contributions to economic growth. "The manufacturers want a greater profit," as E.S. Meade, the authority on trust finance, put it, "without such a desperate struggle to get it." By the time the crisis of the 1890s arrived, capitalists figured they had lost the class struggle, and they were right. According to reputable businessmen, journalists, economists, and politicians, the so-called Gilded Age of the late 19th century was one long depression, and workers rather than capitalists were the principal beneficiaries.

The capitalists were, of course, poor-mouthing and propagandizing, but the numbers validate their accounting. Income shares shifted toward labor and away from capital in this period, in an exact inverse of what we have witnessed over the last 40 years (when, not incidentally, wages and median family incomes have stagnated, corporate profits have soared, and executive compensation has skyrocketed). By 1890, this possibly disturbing distribution of income between capital and labor had become so significant a public issue that the Senate Finance Committee commenced hearings to investigate it.

From the standpoint of capitalists, why did income shares perform so badly in the so-called Gilded Age? It’s all about the relation between real wages and productivity. If real wages are rising and productivity isn’t, labor’s share of national income will rise at the expense of capital’s share. That’s what happened in the late 19th century. If real wages are stagnating and productivity is increasing, capital’s share of national income will rise at the expense of labor’s share. That’s what happened in the late 20th century.

In the so-called Gilded Age, real wages increased dramatically but labor productivity didn’t, so capitalists suffered. Extraordinary economic growth happened, no doubt about that then or now, but workers were, as the capitalists complained, the principal beneficiaries. For example, real wages in the nonfarm sector increased roughly 30 percent between 1884 and 1896 (unemployment wasn’t rising), but productivity flatlined. The opposite is true of our time. ...