This election is being fought along the traditional skirmish line of capital versus labor. President Obama projects himself as the protector of workers and families who are preyed upon by greedy and wealthy capitalists. Mitt Romney counters that the president doesn’t understand business and that his antagonism discourages private investment and job creation. This argument over contemporary capitalism is inevitable and legitimate, though in part misleading.

It’s misleading because, in the long run, the interests of labor and capital coincide. Production and technological advances that enrich capitalists also raise mass living standards. Marxism’s failure to recognize this was its undoing. But in the short run, labor’s and capital’s interests often diverge. Layoffs may boost profits; wage increases may do the opposite. Politics thrives on these conflicts.

[Read how commenters are responding to this column, in Rachel Manteuffel’s PostScript.]

What’s clear is that capital has recovered from the Great Recession faster than labor. At last count, corporate profits were 20 percent higher than their pre-recession peak in 2006. Corporate managers have cut costs and streamlined operations. Although this may improve the economy’s long-run efficiency, the immediate effect is higher unemployment. The number of non-farm payroll jobs, up 3.7 million from its low point, is still 5 million below its previous high.

Capital’s share of national income has actually increased slowly since 1980, as the table below shows. It divides the economy’s total income — what everyone earns — between capital and labor. Labor income consists of wages and fringe benefits. Capital income is corporate profits, income of proprietors (small businesses, partnerships), rental income and interest payments. The table doesn’t show rents and interest payments separately. Also, labor and capital account for only about 90 percent of pretax national income. Government represents most of the rest and, of course, also taxes labor and capital income. (See chart below.)

LABOR AND CAPITAL SHARE OF NATIONAL INCOME

1950 1980 2000 2011

LABOR 58.9% 67.7% 64.8% 61.7%

Wages 55.8 56.5 54.0 49.7

Fringe benefits 3.0 11.3 10.8 12.0

CAPITAL 32.4% 24.1% 26.8% 29.7%

Corporate profits 13.5 8.3 9.2 14.5

Proprietorships 14.2 7.1 9.2 8.3

Source: Moody’s Analytics, Bureau of Economic Analysis

The message is plain. Since 1980, labor’s share of national income has receded. There’s been a widespread “weakening of workers’ bargaining power,” says Dean Baker of the Center for Economic and Policy Research, a liberal research group. He cites shrinking union membership (now 7 percent among private workers), greater competition from imports, deregulation (in airlines, trucking, telecommunications) and production shifts abroad. “The ability to put downward pressure on wages (is easier) when you can move operations to Mexico and China,” he says.

To Baker’s list, I’d add another: changed corporate norms. Until the late 1970s, executives tried harder to balance workers’ well-being and higher profits. After 1980, the emphasis shifted to “maximizing shareholder value.” That’s one reason profits recovered quickly.

A couple of observations on the table.

First, capital income doesn’t flow just to “fat cats.” It also goes to small businesses, retirement accounts, college endowments, ordinary shareholders, landlords and people who collect interest.

Second, labor’s shrinking share isn’t necessarily a disaster for workers. What else is happening in the economy also matters. The inflationary 1970s, when labor’s share was rising, were turbulent. The period from the mid-1980s until 2007, when labor’s share was falling, was generally prosperous. If economic growth is strong, compensation can increase even if labor’s share drops.

The bargain that capitalism makes with society is that profits won’t simply be consumed but will also be reinvested. Jobs and living standards will increase. One reason for the recovery’s weakness is that there’s been a partial disconnect between swelling profits and higher investment. Companies are hoarding earnings. At year-end 2011, non-financial corporations had $2.2 trillion in cash and short-term securities, up 60 percent from 2008.

The caution partly reflects the Great Recession’s traumatic nature. Companies and consumers alike are more protective. But to hear Obama — his hectoring of oil companies, bankers, insurance companies and the rich — there’s something more. American capitalism has become more predatory and exploitative. Naturally, Romney and his former employer, the private-equity firm Bain Capital, are cast as symbols of this pillaging capitalism. Government must provide more direction.

Just the opposite, say business groups and Romney. Government impedes investment. Hostility and policy uncertainties — about taxes, spending, deficits, regulations — deter decisions. A report from the Business Roundtable, a group of corporate CEOs, argued that costly and time-consuming permit requirements by different agencies delay or doom many projects. The process needs overhauling, the report said.

American capitalism is on trial. When Americans vote in November, they will unavoidably choose between these competing visions of capitalism. One would try to improve capitalism by controlling it more. The other would aim for faster economic growth by removing government obstacles. It’s a fateful debate.