How the Great Fortunes Grow: The State Lends a Helping Hand

Wealth and Democracy: A Political History of the American Rich , by Kevin Phillips. Broadway Books, 432 pages, $29.95.

Having sourly observed the continuing elongation of the private limousinesthat cruise Manhattan streets, a friend of mine devised a worthy response. “They ought to be taxed by the foot,” he said. The longer the limo, the more money its occupants would be obliged to cough up for the privilege of fouling our air and clogging our avenues. They could pay a nice stiff annual surcharge calculated with a tape measure, and all the revenues would be dedicated to mass transit.

My friend, victim of a deadly lung disease aggravated by pollution, wasn’t joking. He explained with perfect reason how his scheme would discourage a growing public nuisance, remove a new source of airborne filth, divert a few excess dollars toward a neglected public service and encourage a becoming modesty among would-be urban aristocrats.

There was once a time when such notions were considered seriously, but any proposal that imposes too much on the wealthy has long been considered politically impractical and culturally anachronistic, even in liberal New York. Though these days nobody brays about greed being good, the rule of gold is more firmly established than ever, here and everywhere.

Today we live in a city led by a genuine billionaire. When he brushed aside campaign-finance rules to buy the Mayoralty last year, scarcely a squeal of protest was heard from civic groups and newspaper editorialists. The Mayor informs us that with municipal coffers depleted and severe fiscal hardship ahead, everyone will have to sacrifice-except, as usual, those who can best afford to, like Mike Bloomberg. So far there’s no upwelling of public protest.

The nation is led by a millionaire who entered the White House as much through inheritance as election, surrounded by his father’s corporate cronies. He has wrapped the flag around policies designed to benefit a tiny fraction of citizens concerned with the top income-tax rate, the capital-gains tax, the estate tax and the corporate alternative minimum tax; like them, he favors reducing or eliminating all such impositions on wealth. By family background as well as political inclination, the President embodies the interests of Big Oil and Wall Street. Although public opinion duly notes George W. Bush’s bias in favor of his own economic class, that awareness has done little damage to his popularity.

Indeed, after a decade or more of gross excess and a shattering of corporate idols, we remain blandly inured to the abuses of the wealthy. We aren’t about to start taxing those damned stretch limos, either.

Radical ideas that have seemed implausible for years, however, could suddenly become irresistible. So predicts Kevin Phillips, the Republican consultant turned historian who accurately foresaw, more than 30 years ago, the advent of his party’s domination of national politics. Now the former Nixon campaign adviser looks forward to a resurgent American populism, which he regards as the only way to avoid economic decay and refresh decrepit democracy. That’s the essential message of his brave new book, swathed in more than 400 pages of demanding analysis, copious statistical data, and many lists of the richest people here and there, then and now.

Ranging from chapter to chapter across oceans and centuries, Mr. Phillips constructs a complex analogy between the United States at its superpower zenith and its imperial predecessors in Spain, Holland and Great Britain. His argument isn’t easily summarized, but in essence he’s warning us of certain symptoms that eventually grip all the great capitalist powers: concentration of wealth, polarization of classes, irrational speculation, excessive luxury, technological mania, government corruption, market idolatry and political alienation. He believes that we are being led down the same spiraling path, toward the same dead end.

If the multifaceted comparisons Mr. Phillips draws from Holland in the 1770’s or Britain in the 1890’s to America at the turn of the millennium are not always persuasive, his radical vision of American history is compelling. Naming names and weighing fortunes from the very beginning of the Republic, he painstakingly traces the development of family and corporate wealth-despite heroic attempts at reform-into this society’s predominant, virtually unchallenged force. His most significant contribution is not to reiterate what we already know about the rich getting richer. It’s instead to show how they got that way, and why they keep getting more while the rest of us get less. It isn’t only because they are smarter or thriftier or luckier.

What makes Mr. Phillips’ analysis so radical is his insistence on examining the roots of the great fortunes-and revealing the state power that underwrote so many of them. Enterprising elites have always consorted profitably with ruling elites, no matter how they may affect to disdain each other. Readers whose familiarity with the Founding Fathers is limited to celebratory popular histories may find this irreverent review of the nation’s formative decades disillusioning.

Insider trading among the politically connected few dates back at least as far as Alexander Hamilton’s plan to redeem the Revolutionary War debt. He enriched his own Federalist clique at the expense of ordinary citizens whose excise taxes financed the deal. When the Jeffersonians took over, favor shifted to another set of businessmen. Among these was John Jacob Astor, a German immigrant whose descendants still adorn New York society. The success of Astor’s fur and liquor trade on the frontier, and later the value of his vast real-estate holdings in Manhattan, depended heavily on “friends in high places.”

The intimacy of industry, commerce and finance with government has scarcely faded during the two centuries since Astor’s rise. Until well after 1900, the misuse of public authority to line private pockets went virtually unchecked. The Gilded Age robber barons whose rapacity founded many of America’s distinguished family fortunes are now remembered only dimly; to illuminate their depredations, as Mr. Phillips does, is to show how the world really worked. He estimates that the railroads, which “marked the principal track to wealth” after the Civil War, raised most of their initial capitalization in public subsidies from government-both in direct financial aid amounting to more than $100 million and in land grants totaling at least 200 million acres. This represented an excellent return on the investment made by the railroad men in buying the state legislatures and the United States Senate.

Of course, Mr. Phillips is not suggesting that the railroads shouldn’t have been built, or that the government shouldn’t have assisted their construction. His point is simply that the country’s most powerful economic engines have relied upon government, from the shipping and trading charters of colonial times to the international financial arrangements of the present. The means and manner by which the state nurtures wealth vary from industry to industry; they become more complicated from era to era; but always they persist and expand.

“The opportunities of debt management, currency inflation or deflation, central banking, tax and tariff policy, whatever their societal debits and credits, have always been good pickings for a select minority,” writes Mr. Phillips. “So, too, for favoritisms to corporations and railroads as well as government subsidies to industry and technology from the telegraph to the Internet. Few of America’s great fortunes have not been so abetted, despite the rhetoric of pristine markets and unaided enterprise.”

Such unvarnished realism mocks the “free enterprise” ideology underpinning conservative politics and policy, as Mr. Phillips well knows. (The promotion of that ideology, he notes, has itself become a lucrative and largely tax-exempt intellectual industry.) If the rich are not the rugged individualists of American mythology but the dependents of public policy, then government action to aid the less fortunate is not merely legitimate but justified. If government has often shifted wealth upward, then there’s no moral or ethical obstacle to redistribution downward.

Among the natural results of this system is inequality on a scale that was not so long ago unimaginable. In 1981, the compensation of the highest-paid corporate executive in America was about $5 million; 20 years later, that magic number had reached $290 million. Another chart shows how net income shifted among classes between 1977 and 1994. For the bottom 60 percent, average income fell about 8 percent; for the top 1 percent, it rose 72 percent.

Mr. Phillips offers many stunning graphic juxtapositions, though there are also moments when he oversimplifies badly. I would quarrel, for instance, with his assessment of the Clinton era. Where he sees a “conservative” Democratic Presidency that mostly served the same narrow interests as its Republican predecessors, there is in fact a record of successful action on behalf of working families.

Bill Clinton, a man of lower-middle-class origin, raised the minimum wage, vastly expanded the earned-income tax credit, and fought the tobacco, pharmaceutical and insurance oligopolies. He increased student loans, which his successor is seeking to cut, and raised taxes on the rich in his first budget, a trespass for which he was never forgiven. (If you don’t believe me, ask Jack Welch.)

But while Mr. Phillips may underestimate the achievements of the last Democratic administration, his frustration with mainstream politicians is understandable. The wisest have only begun to understand that plutocracy threatens to overwhelm our liberty and our prosperity; the bravest have not yet found the courage to say so. When they do, Mr. Phillips believes that patriotic Americans will be ready to listen and to act.

Joe Conason is The Observer’s national correspondent. How the Great Fortunes Grow: The State Lends a Helping Hand