Wealth and Democracy: The Politics of the American Rich
By Kevin Phillips
Broadway, 473 pages, $29.95
The really wise men and women of Washington know the key to understanding the capital isn’t to monitor poll results, or to watch the president’s Oval Office schedule, or even to chronicle the movement of legislation in Congress. The real insights into how Washington works come at meetings of the House Ways and Means and the Senate Finance Committees.
There the full panoply of the Washington spectacle is evident: the lobbyists sitting dutifully with their yellow legal pads, the quiet transformation of seemingly innocuous items into binding law, the fateful movement of millions and billions of dollars that, in an instant, deliver political prizes by creating tax shelters and entrepreneurial opportunities, and by affecting the economic climate and millions of subtle business decisions.
The business of American politics is business, and now Kevin Phillips, a leading Republican political theorist, has written a guidebook to how the great fortunes were made, fostered or shaped by politics. The subtitle of this latest work, “Wealth and Democracy,” properly should be this Washington corruption of an ancient insight: The rich are always with us.
The wealthy are represented in the rooms where the Ways and Means and the Senate Finance Committees meet, in the glittery capital receptions where lawmakers and lobbyists meet in congenial preprandial gatherings, in the Redskins luxury boxes where political gossip is passed with the pretzels, in tucked-away regulatory offices where unelected bureaucrats determine how much water has to be in your toilet or how cold your frozen turkey has to be.
But Phillips’ book is no Washington version of “Our Crowd,” no chronicle of the social patterns of the chummy and the clubby. It is, instead, a gritty tour of American history and American fortunes, punctuated not by the strains of a string quartet or the brassy blast of a swing band but by studies, statistics and scholarly monographs. (This, for example, is the place to learn things like the fact that 41 American railroads had a capitalization of $15 million or more in 1880, which is stunning when you consider that Standard Oil of Ohio had a capitalization of only $1 million when it was organized a decade earlier.)
At the heart of Phillips’ thesis is the notion that economic and political power are intertwined–not, as the editorial page of The Wall Street Journal would suggest, because free people are drawn to free markets but because, as The Nation might argue, government is one of the creators and engines of private wealth.
“From the nursery years of the Republic, U.S. government economic decisions in matters of taxation, central bank operations, debt management, banking, trade and tariffs, and financial rescues or bailouts have been keys to expanding, shrinking, or realigning the nation’s privately held assets,” Phillips writes. Many early American fortunes were built on investment or speculation in government debt–a pattern that continued in the period following the Civil War, into the Gilded Age, the Roaring ’20s and the Ronald Reagan era. Tax cuts sprinkled throughout the 20th Century, particularly in the 1920s and 1980s, were weighted to provide disproportionate benefits to the wealthy. Federal subsidies, first to canals, later to railroads and in our time to failing auto and thrift interests, have been an incubator of robust fortunes. And, of course, the fundamental governmental act of expanding or shrinking the currency has had far-reaching effects on the economy, seldom to the detriment of the rich.
Even in periods like the 1930s, when the New Deal sought to assist the poor, the prospects and, eventually, the balance sheets of (some of) the rich were enhanced; consumer-based fortunes, including retail enterprises, footwear and apparel distributors and entertainment empires, did particularly well. As a result, Phillips argues, many of the wealthy involved in these industries developed strong ties to the Democratic Party.
Since the beginning, the government has played a decisive role in the development and distribution of technology. Phillips points out that the patent law of 1790 was unusually generous, giving inventors exclusive rights to their new products for 14 years and establishing the U.S. as “a well-run market for ideas as well as goods.” That core idea helped Eli Whitney produce muskets, assisted railroad magnates in laying track and gave invaluable aid to the American fishing, communications and, eventually, high-tech industries. (Best example: In the heyday of the railroads, the government paid to survey the routes and to supervise the construction. It also suspended the tariff on the most important raw material in railroading: iron.)
In those cases–plus dozens more, including aviation and space technology in our own time–government was not, as Reagan might put it, the problem. It was the solution. In those cases, government did not get out of the way. It plunged right in.
This is an unusual thesis to be propounded by an avowed conservative and onetime Republican strategist. As a young man, Phillips had an insight that transformed GOP politics and, as it turned out, Richard Nixon’s political prospects. He took the principal geopolitical assumption of American elections at the time–that the South was solid, which was to say Democratic–and he stood it on his head.
Phillips dared to imagine a Republican South, and then he helped persuade the Republicans to plant their hopes and their future in the fertile soil of Dixie. When Nixon ran as Dwight Eisenhower’s running mate in 1952, the GOP ticket lost Arkansas, Louisiana, Mississippi, Alabama, Georgia, South Carolina, North Carolina and Kentucky. Nixon made Southern inroads in 1968, swept the region in 1972, and when Reagan ran as the Republican nominee in 1980, the California governor took every Southern state but Georgia, the home of his rival, President Jimmy Carter.
All of which is to say that Phillips sits in the Republican pew but has a hymnal all his own.
His argument that in many periods the government has been harnessed in the service of private wealth is only the start of it. He also asserts that there is a difference between democracy and free-market economics, adding, “the attempts to confuse and conflate them in pretended equivalence stood out as a destructive aspect of U.S. politics.” This is decidedly not in the GOP liturgy.
Scholars have long noted that some of the greatest progressives came from the posh side of the class barrier; just last year James MacGregor Burns and Susan Dunn wrote a triple biography of Theodore, Franklin and Eleanor Roosevelt, terming these three leading progressive figures “patrician leaders who transformed America.” Phillips takes the argument further, saying that “arousal against abuses of wealth and power have always transcended class lines.”
So what are we to make of American wealth and American political power? That they are connected, of course. That the one is the beneficiary of the other, to be sure. And that talk about the magic of the marketplace is exaggerated. Phillips argues that Democrats and liberals construct their politics to collectivize risks–of old age, poverty and hunger. But he says that Republicans and conservatives also seek to collectivize risks–of investors and business executives.
The late House Speaker Thomas P. O’Neill Jr. used to say that all politics is local. Kevin Phillips is arguing that all politics is in the distribution of risk. Plus one thing more, useful in crime mysteries and on Capitol Hill: Follow the money.
