Numbers, numbers, numbers...
In the 1890's, there were something like 4-5000 books published each year. All gatekept by the publishing establishment.
http://query.nytimes.com/gst/abstrac...DA405B8985F0D3
Total population: 75 million
In 1930, there were something like 10,000 books published in the US. All gate-kept.
http://homepages.law.asu.edu/~dkarja...EldredSCt.html
Total population: 123 milion
In 1950, there were a bit more than 10,000 books published in the US. Gatekeeper still in control.
http://onlinebooks.library.upenn.edu/cce/1950stats.html
Total Population: 151 million
In 2003, there were 248,000 books published.
Total population, ~285Million
In 2012, there were over 3 million published.
http://onfictionwriting.com/editoria...Slush-Pile/49/
Total population, ~310Million
I'm sure somebody accessing the US Copyright office can come up with more detailed records to document the trend but it is clear that:
1- Sometime past 1950 (probably around 1960) the number of books published in the US exploded by an order of magnitude (paperback originals being the likely driver).
2- Some time past 2003 (probably around 2009) the number of books published in the US exploded by *another* order of magnitude (the mainstreaming of ebooks being the likely driver).
3- The number of litfic writers in the US has *not* exploded by an order of magnitude, much less two, in the past 8 decades.
4- The power of literary establishment gatekeepers and endorsers is much diminished since their heyday in the 50's.
I would suggest that the growth in published fiction titles over the past 8 decades has come almost exclusively in the mass-market genres and not in the litfic genre so that the number of "literary" titles published per year are more of less constant while the number of titles in the other genres has grown with the country's population, literacy rates, and market forces.
I would note that a "paperback original" "literary masterpiece" has always been pretty much an oxymoron and that a self-published "literary masterpiece" may exist but its chances of selling in 50 shades or Wool numbers are pretty low.
Bottom line: in the days of hardcover-only originals and 200 new titles a week (average) it would be a lot easier for an establishment-endorsed litfic title to become a bestseller than it would be today when we're looking at something like 10,000 new titles a *day*. (And note that the total number of books sold was much, much lower in the pre-paperback era.)
LitFic has always been championed by the traditional gatekeepers but when the gatekeepers lose their clout, their power to champion anything other than lowest-common denominator cash-cows (charity starts at home) is pretty much history.
So in that respect, yes, the literary establishment is in decline. Not because their grade of product isn't being produced and consumed in traditional numbers, but because everything else is smothering its visibility. Look around and you'll fine as many literary masterpieces coming out as in any decade past and their sales numbers will likewise be about the same. Was isn't the same is everything else.
Get used to it: we are now in an publishing economy of abundance and the challenge is no llonger getting published but getting noticed. And in the visibility game not even the gatekeepers of yore have much influence.