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Prior to the Industrial Revolution, there was virtually no “Middle Class”; there were the Wealthy and the Poor, with little in between. The poor lived miserable subsistence lives while the wealthy had fine clothes, servants, and good food.
You may have been taught that the “Middle class” was the result of Unions or Government policies, but before any of that, there was the Industrial Revolution, which resulted in massive productivity improvements. These new factories needed laborers, and although they paid a pittance compared to today, they still paid much more than you could make as a subsistence farmer. So, a massive migration began, bringing people into the cities to work in the factories.
Incidentally, Henry Ford (not Unions) doubled workers’ wages. He did this in an effort to keep the best workers, i.e., to reduce turnover, alcoholism, and absenteeism. Then, Unions forced other companies to follow Ford’s example.
The rise of factories created massive deflation. Due to the rapid increase in productivity, prices fell because it cost a lot less to produce things in a factory than to have a skilled craftsman build them one by one. This created something called “The Great Deflation,” and falling prices allowed ordinary workers to begin saving. This is what gave rise to the Middle Class; ordinary workers who lived frugally were actually able to save enough to buy houses and move up the economic ladder.
Since then, “The Great Depression” has given deflation a bad name. But when prices fall due to increased productivity, everyone benefits. However, when deflation happens due to collapsing financial institutions and falling demand, bad things happen. Who is hurt most by Deflation? Debtors. Why, because rather than being able to pay off debt with cheaper dollars, dollars become more valuable. And who is the biggest debtor in the world? The U.S. government. As of this writing, U.S. government debt is more than $38 trillion. So, the government has a significant interest in causing (and promoting) inflation and creating fear of deflation.
Interestingly, we are on the verge of another wave of increased productivity with the advent of AI, which should eventually help everyone due to lower prices. However, in the short run, there will be dislocations as some people lose jobs. But over time, new jobs will be created that we can’t even imagine today.
The following excellent video by “The Why Minutes” explains how deflation was largely responsible for the creation of the middle class.
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