First Chapter: Plutocrats by Chrystia Freeland
An excerpt from journalist Chrystia Freeland’s book Plutocrats in which the author gives two brief historical narratives, one of America’s economic inequality and the other of political inequality, from the 1770s to the 1970s.
Below is an extended excerpt from the first chapter of Chrystia Freeland’s latest book, Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else. Freeland spoke at the Challenges to Democracy launch event, an October 3 panel discussion moderated by WBUR and NPR’s On Point host Tom Ashbrook on the threat economic inequality poses to the health of American democracy. This post is part of an occasional series highlighting the first chapters of recent books by speakers and participants in the Challenges to Democracy public dialogue series.
Recently out in paperback, Plutocrats was one of Financial Times’ Best Book of 2012 and winner of the 2013 Lionel Gelber Prize. In this excerpt Freeland explores the trajectory of economic inequality in the United States beginning with the time of its founding. Society within the young democracy of America was quite unlike today; instead it was significantly more egalitarian — in part because the American colonies lacked the extreme wealth of the aristocracies of Europe. A century later, after the Industrial Revolution took hold, economic disparities blossomed. But so too did political equality. Through the mid-1900s, the American political system worked to constrain economic inequality through unprecedented taxation, safety net programs and regulation of finance and business — what Freeland calls the “compromise between the plutocrats and everyone else.” The result was healthy economic growth and a shrinking of economic disparities from the end of World War II into the 1970s.
Later in the book, Freeland explores the implications of economic inequality for American democracy. Today’s rise of the extremely wealthy — a class of global “plutocrats” — has led to social and cultural shifts in which the powerful are increasingly disconnected from the vast majority. Yet, these super-wealthy invest their vast resources in efforts to develop and advance their notions of good policy — in areas like education, health, economic development, tax policy, and regulation — in the United States and abroad. Whether these efforts come in the form of lobbying or as philanthropy, they create challenges for the principles of political equality and equal opportunity for influence, which are central to the idea of democracy.
Many thanks to Penguin Press for allowing us to re-print this excerpt from the first chapter of Plutocrats. Readers who enjoy this excerpt should consider reading the whole book, which can be purchased online here, here, or here.
History and Why it Matters
…Jefferson contrasted this egalitarian Arcadia with an England of paupers and plutocrats: “Now, let us compute by numbers the sum of happiness of the two countries. In England, happiness is the lot of the aristocracy only; and the proportion they bear to the laborers and paupers you know better than I do. Were I to guess that they are four in every hundred, then the happiness of the nation would to its misery as one in twenty-five. In the United States, it is as eight millions to zero or as all to none.” Alexis de Tocqueville, visiting America two decades later, returned home to report that “nothing struck me more forcibly than the general equality of conditions among the people.”
America, in the eyes of Jefferson and Tocqueville, was the Sweden of the late eighteenth and early nineteenth centuries. Data painstakingly assembled by economic historians Peter Lindert and Jeffrey Williamson have now confirmed that story. They found that the thirteen colonies, including the South and including slaves, were significantly more equal than the other countries that would also soon be the sites of some of the most vigorous manifestations of the industrial revolution: England and Wales and the Netherlands.
“If one includes slaves in the overall income distribution, the American colonies in 1774 were still the most equal in their distribution of income among households, though by a finer margin,” Professor Lindert said.
In addition to seeing America as egalitarian, contemporary visitors and Americans believed the colonists were richer than the folks they had left back home — that was, after all, part of the point of emigrating. Lindert and Williamson have confirmed that story, too, with one important exception. Egalitarian America was richer, apart from the super-elite. When it came to the top 2 percent of the population, even the plantation owners of Charleston were pikers compared to England’s landed gentry. Indeed, England’s 2 percent were so rich that the country’s average national income was nearly as high as that of the United States, despite the markedly greater prosperity of what today we might call the American middle class. “The Duke of Bedford had no counterpart in America,” Professor Lindert said. “Even the richest Charleston slave owner could not match the wealth of the landed aristocracy.”
In egalitarian America, and even in aristocratic Europe, the industrial revolution eventually lifted all boats, but it also widened the social divide. One reason that process was traumatic was that it was pretty dreadful to be a loser — from their personal perspective, the Luddites, skilled weavers who wrecked the machines that made their trade unnecessary, had a point. But, as in all meritocratic 1 percent societies, the creative destruction of the industrial revolution was also traumatic for the many who made a good-faith effort to join the party but failed. Indeed, it was the pathos of these would be winners that inspired Mark Twain to write the novel that gave the era its name.
As Twain and coauthor Charles Dudley Warner explained in a preface to the London edition of their novel, The Gilded Age: “In America nearly every man has his dream, his pet scheme, whereby he is to advance himself socially or pecuniarily. It is this all-pervading speculativeness which we tried to illustrate in The Gilded Age. It is a characteristic which is both bad and good, for both the individual and the nation. Good, because it allows neither to stand still, but drives both forever on, toward some point or other which is ahead, not behind nor at one side. Bad, because the chosen point is often badly chosen, and then the individual is wrecked; the aggregations of such cases affects the nation, and so is bad for the nation. Still, it is a trait which is of course better for a people to have and sometimes suffer from than to be without.”
The paradox was that even as Carnegie, America’s leading capitalist, acknowledged that the country’s economic transformation had ended the age of “social equality,” political democracy was deepening in the United States and in much of Europe. The clash between growing political equality and growing economic inequality is, in many ways, the big story of the late nineteenth century and early twentieth century in the Western world. In the United States, this conflict gave rise to the populist and progressive movements and the trust-busting, government regulation, and income tax the disgruntled 99 percent of that age successfully demanded. A couple of decades later, the Great Depression further inflamed the American masses, who imposed further constraints on their plutocrats: the Glass-Steagall Act, which separated commercial and investment banking, FDR’s New Deal social welfare program, and ever higher taxes at the very top — by 1944 the top tax rate was 94 percent. In 1897, the year of the Bradley Martin ball, incomes taxes did not yet exist.
In Europe, whose lower social orders had never had it as good as the American colonists, the industrial revolution was so socially wrenching that it inspired the first coherent political ideology of class warfare — Marxism — and ultimately a violent revolutionary movement that would install communist regimes in Russia, eastern Europe, and China by the middle of the century. The victorious communists were influential far beyond their own borders — America’s New Deal and western Europe’s generous social welfare systems were created partly in response to the red threat. Better to compromise with the 99 percent than to risk being overthrown by them.
Ironically, the proletariat fared worst in the states where the Bolsheviks had imposed a dictatorship in its name — the Soviet bloc, where living standards lagged behind those in the West. But in the United States and in western Europe, the compromise between the plutocrats and everyone else worked. Economic growth soared and income inequality steadily declined.
Between the 1940s and 1970s in the United States the gap between the 1 percent and everyone else shrank; the income share of the top 1 percent fell from nearly 16 percent in 1940 to under 7 percent in 1970. In 1980, the average U.S. CEO made forty-two times as much as the average worker. By 2012, that ratio had skyrocketed to 380. Taxes were high — the top marginal rate was 70 percent — but robust economic growth of an average 3.7 percent per year between 1947 and 1977 created a broadly shared sense of optimism and prosperity. This was the golden age of the American middle class, and it is no accident that our popular culture remembers it so fondly. The western Europe experience was broadly similar — strong economic growth, high taxes, and an extensive social welfare network…
Reprinted by arrangement with The Penguin Press, a member of Penguin Group (USA) LLC, A Penguin Random House Company. Copyright © Chrystia Freeland, 2012.
Readers can purchase this book at Amazon, Barnes & Noble, or Indiebound.
Originally published at www.challengestodemocracy.us.
