“Classical economists defined “class” in terms of the source of income – land ownership, labor or capital. Landlords charge rent, workers earn wages, and capitalists employ wage-labor to produce commodities to sell at a profit. As the American economist Simon Patten noted over a century ago:
The older thought assumed that for each kind of income there was a social class which was interested in its defense. The social condition of England at the time economic theory was formulated favored this concept. The aristocracy held the land, the so-called middle or industrial class owned the capital, while the great mass of unskilled and politically unprotected laborers did the work. The essence of the Ricardian [David Ricardo’s] economics was an opposition to the aristocratic landlords, and it succeeded so well that an imputation of being unearned was put up on their income. In America, however, while we have rent, we have no landlord class. The income from rent and interest is so diffused that all income-receivers form one class…Profit holders blend with the holders of rent and interest and think of themselves as a social unit. All get profit, rent and interest in their income.
Not all income is a return to a factor of production. Banks or other creditors lend out money or savings at interest, but money is not a means of production. The banking and financial class is empowered to create credit or lend out wealth as “silent partners.”
Along such lines it is helpful to distinguish the FIRE sector (finance, insurance and real estate) from the “real” economy of production and consumption (whether capitalist or socialist). One cannot really speak of a saver or creditor class as such, because all classes tend to be both savers and debtors simultaneously. But rentiers derive income from ownership and legal privileges to charge rent for access to land, interest for credit, and monopoly rent for trade and goods or services.
Landlords, bankers and monopolists do not play a direct role in production. A class approach focusing on production relates only to one part of the economy, which is wrapped in a network of taxes and public spending, as well as credit and debt. So one can speak of the banking and monopoly class and, in the 20th century, the managerial class. Milovan Djilas described the Soviet government bureaucracy in The New Class (1957).”
Michael Hudson (2017), J is for Junk Economics: A Guide to Reality in an Age of Deception, Germany: ISLET-Verlag, p.56-7.
The Political Economy of Development 