JC Penney and the Death of the Middle Class

James Cash PenneyOn this day in 1875, the businessman James Cash Penney was born. He is known for his hugely successful chain JC Penney. He had a kind of Horatio Alger beginning in his life. He worked for a small chain of stores. The owners were so impressed with his work that when they opened a new store, they gave him one-third ownership. After a couple of years when his partners wanted to break up, Penney bought out their interests and the chain was formed. Within ten years, it went from three stores up to 34. By 1929, the chain was nationwide with 1,400 stores. Although he was hit hard by the Great Depression, he weathered it and remained with the chain up to his death at 95 in 1971.

The company has managed to do pretty well in good times and bad. But the last decade has been very tough, as it has been for most businesses that cater to the middle class. This is because the middle class is dying. There is a thought experiment that is worth doing. Consider an economy in which one person owned everything. It couldn’t work because no one would be in a position to buy anything. A successful economy depends upon transactions. The more lopsided the distribution of goods, the less transactions can occur. So in general, an economy that is fairly equal will be one that works the best.

This is a fact that seems to have been forgotten by the rich of the world. Or rather, they believe in the thoroughly repudiated Say’s Law, “Supply creates its own demand.” By this theory, as long as the rich have factories to build things, there will be people to buy them because… Actually, I have no idea why. The idea is ridiculous. As I discussed last month, Wall St Says Economic Inequality Is Bad. And it is bad for the rich as well as the poor.

What James Cash Penney built was great. But he was only able to do it because it was done during a time of a growing middle class. When the Great Depression decimated the middle class, it almost destroyed his chain. And as the middle class has been systematically attacked over the last several decades, it has gotten harder and harder for Penney and other middle class oriented retailers to survive. Because the economy is like an ecosystem. We all depend upon each other. Without customers who are able to buy stuff, the greatest entrepreneur in the world will be helpless.

It really is the case that to save the middle class is to save JC Penney and Walmart. But sadly, after decades of the Job Creator myth and “Greed Is Good” apologetics, I fear the rich have lost their way. They think they can have it all. But they will find that having it all is the same as having nothing. James Cash Penney understood this balance, because he lived through it. He couldn’t depend upon the government to bail him out regardless of how badly he behaved. But he’s dead like all the great businessmen of the past. And now what we have are a bunch of entitled rich people who are indistinguishable from 18th century English Dukes.

Happy birthday James Cash Penney!

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