This paper was presented to the Club by Roger B. Linscott in 1989. Roger was, for many years, the associate editor of The Berkshire Eagle, Pittsfield's daily newspaper. He won the Pulitzer Prize for his editorial writing in 1973, and died in 2008 at the age of 88, having been a member of the Club since 1950. We are indebted to Roger's daughter, Wendy Lamme, for a treasure trove of Roger's Club papers which we will be publishing during the next several years. In this paper delivered 20 years ago, he tackled the issue of the skewed distribution of wealth in America, which has only gotten more skewed in the two decades since he wrote it.
A widely-admired New Yorker cartoon of my younger years — done, I believe, by Peter Arno in the 1940s — depicted a rather elderly and obviously successful cleric seated at his desk in front of a huge vaulted window in the office of a Fifth Avenue cathedral. Fingertips together and eyes cast heavenward, he is addressing an eager-looking novice on the other side of the desk; and what he is saying to him is: "Young man, as one who would seek preferment in our calling, I would admonish you to avoid whenever possible two subjects: politics, and religion."
Obviously this has political overtones, but not of a particularly partisan nature. Very rich people, for self-evident reasons, tend to be political and economic conservatives, but there have always been plenty of exceptions, especially among those of primarily inherited wealth. On this score it might be noted that the three richest American presidents in this century — the two Roosevelts and John F. Kennedy — were all professed reformers who made no bones about their contempt for economic royalists. TR told Congress that "our prime objective should be to put a constantly increasing burden on the inheritance of these swollen fortunes, which it is certainly no benefit to this country to tolerate." FDR was of course denounced as a traitor to his class for what he liked to characterize as his relentless war on entrenched greed. And JFK was fond of quoting an eminent authority, his own ruthlessly acquisitive father, to the effect that "all businessmen are sons of bitches." In any event, it is getting harder and harder to type-cast the very rich in a political sense. Most of the vast new fortunes being made today are accumulated by essentially apolitical entrepreneurs who are pragmatists rather than ideologues. They will go wherever the money is and will deal with whomever they need to get it.
And (to return to the main theme of this paper) they are getting it in astonishing quantities. After nearly half a century of slow but steady reductions of extremes of inequality of income in this country, the pendulum about a decade ago began swinging the other way. Since the late 1970s the rich have been getting richer and the poor, in real dollars, poorer. And now the great American middle class is beginning to get squeezed from both directions.
This growing gap between the very rich and the rest of American society has not been generally acknowledged by the public, or acknowledged by the politicians, many of whom are part of the problem, but the facts and figures are indisputable. A recent Congressional Budget Office study found that for the 40 percent of Americans at the bottom of the economic scale, average after-tax income is lower today than it was in 1977. Real after-tax earning for typical middle-class families held just about even during the same period. But the average real after-tax income of the richest one percent of the population jumped by a staggering 74 percent.
The disparities are particularly arresting when one uses the much more meaningful yardstick of net worth, which is to say the difference between an individual's total assets and total liabilities. An exhaustive analysis by the Congressional Joint Economic Committee two years ago established that while the wealthiest 10 percent of Americans owned approximately 63 percent of our nation's economic pie in 1964, their holding had increased to just under 70 percent 20 years later. The same study found that the concentration of wealth in the top one percent had reached 34 percent — significantly (and ominously, in the opinion of economist John Kenneth Galbraith) the highest concentration since 1929, the year of the great crash.
All indications are that in the several years since the figures in the Joint Economic Committee's study were collected, the disparities in incomes and net worth have been accelerating. For seven years now, Forbes Magazine has been turning a crew of researchers loose to compile a list of the 400 richest Americans. In 1982, one only had to have a net worth of $93 million to make the Forbes 400. By 1988, the minimum needed had jumped to $240 million.
Other statistics from other sources are equally mind-boggling. A study made by the economics department at Georgia State estimated in 1987 that there were approximately one million millionaires in the U.S., and that their ranks were being expanded at the rate of about 10,000 new millionaires a year. The Income Statistics Bulletin of the Internal Revenue Service has estimated that the number of U.S. millionaires approximately doubled between 1976 and 1982 and may have more than doubled in the years since. In 1987, the responsible publication Financial World reported that the five top moneymakers on Wall Street (individuals, that is) the previous year had averaged $88 million apiece in earnings — and yet only one of them was rich enough to rate a place on the rarefied Forbes 400. That one was Michael Milken, the celebrated junk bond king who, though a mere vice-president at Drexel Burnham Lambert was worth an estimated $600 million at age 40. (Incidentally, Mr. Milken's relative youth is unusual but far from unprecedented among the super-rich. Prominent on Fortune's current list of billionaires is 32-year-old William Gates III of Seattle, whose 40 percent holding in Microsoft computer systems is valued at $1.4 billion.)
Probably one reason there has been relatively little public concern about the concentration of so much of the national wealth in so few hands is that most people have great difficulty in comprehending individual fortunes of such magnitude. The figures may be somewhat more comprehensible when described in comparative terms. For example, the net assets of the 400 richest people listed in Forbes add up to a figure considerably greater than the horrendous federal deficit that we seem to incapable of bringing under control. The total assets of the Forbes 400 also are greater than all the savings that all Americans have in commercial banks — and, if Social Security is taken out of the equation, greater than all of the annual federal expenditures currently directed to assisting directly or indirectly the tens of millions of Americans classed at underprivileged.
The concern here, it should be emphasized again, is not with the unequal distribution of wealth as such. This has always been a fact of life under the free enterprise system and, within reasonable limits, has generally been considered a reasonable price to pay for the enormous benefits that the free enterprise system can convey both in terms of enhancing political freedom and stimulating economic growth. The concern, rather, is with the fact that in recent years the historic movement away from excessive inequalities — a trend that has been an essential element of social harmony in this country — has been reversed, with great potential risk of both economic and social damage to the national interest if the reversal continues.
The factors that have contributed to this turnabout — to this great explosion of individual wealth — are numerous, ranging from skyrocketing value of such finite resources as land and minerals at a time of escalating population, to the huge opportunities that large-scale deficit spending offers to the creditor class.
But much of the explanation is basically political: specifically, the changing nature of our national party system. These changes tend to magnify the political influence of big money while diminishing the influence of the more populist elements that have historically demanded legislative and regulatory restraints on excessive concentration of wealth. Instead of the old-style ward and precinct organizations aimed at getting out the working-class vote, we now have technology-based campaigns run essentially by the new fund-raising, polling and TV-oriented consulting elite. Organized labor, long the strongest driving force for populist policies, has lost virtually all of its muscle as the shift from manufacturing to service jobs has sent union membership plummeting. One crucial result is that while voter turnouts among those in the top third economically have held steady since the 1950s, turnouts among those with less-than-the-median incomes have fallen sharply and steadily. Considering all of these factors, it is hardly surprising that the "L" word was considered a bogeyman in the recent presidential campaign and that regulatory policies in Washington have been run for some time now by men who share the view of Edwin Meese III that "the progressive income tax is immoral." Such an ambiance is not conducive to restraints on a system that creates and sustains increasingly grotesque accumulations of family wealth.
One of the problems with such an ambiance is that vast wealth, in the absence of adequate restraints, tends to expand itself in a sort of chain reaction process without any particular relationship to the wisdom or foolishness of its possessors. On this point I would cite no less an authority than Edgar Bronfman, the whiskey baron and loyal son of Williams College who, according to Fortune, was worth $3 billion at last count. "To turn $100 into $110," said Mr. Bronfman recently, "is work. To turn $100 million into $110 million is inevitable." In other words, if you are exceedingly rich, doing nothing will guarantee your becoming even richer. If you want to diminish your fortune, you really have to work hard at it.
The Dupont family of Delaware is a striking example of how big money — in this case, inherited money protected by competent estate managers — just keeps on growing, no matter how much the heirs may try to screw it up. Although they are one of America's very richest families, with net assets of well over $10 billion, no Dupont of recent generations has been an entrepreneurial success and none in the current generation is even a big factor in the family business. Yet there are 35 Duponts on the Forbes list of the 400 richest Americans. Interestingly, one of the few members of the clan who even tried to become a big entrepreneur on his own was Lammot du Pont Copeland Jr. (known as "Motsey") who flopped so dismally in 1970 that he was obliged to file the biggest personal bankruptcy action in U.S. history, listing liabilities of $59 million. But all's well that ends well. By 1985 the timely arrival of some new inheritances had restored his fortunes and put him back on the Forbes 400 list with a net worth of $150 million.
Another example of the tendency of big money to proliferate without much human intervention was cited by Vance Packard, the popular sociologist, in his recently published study of American affluence entitled The Ultra Rich. In the course of doing the research for his book, Mr. Packard interviewed 30 ultra-rich individuals whose net worth averaged $330 million. That was in 1985. By the time he had completed his research in mid-1987, the average net worth of the same individuals had risen to $425 million.
Mr. Packard's interviews also underscored an interesting fact which, while it has been noted by many others, helps explain why the increasing concentration of great wealth into relatively few hands has not aroused much public notice, let alone concern. With a few flamboyant exceptions, most of those who have it don't flaunt it, if only because they don't want to advertise themselves any more than they have to to thieves, blackmailers, IRS investigators, charitable fund-raisers and the like. This is in fascinating contrast to the ultra-rich of 75 to 100 years ago whose main gratification, as Veblen pointed out in his Theory of the Leisure Class, seemed to be to parade their wealth in the form of conspicuous consumption. Most of today's rich wouldn't want to burden themselves with anything like the turn-of-the-century manor houses of Lenox or Newport, even if they could find the household help to staff them. They tend to rent rather than own, and to hire service agencies rather than employees of their own. Of the 30 ultra-rich interviewed by Packard, one-third had no live-in help whatever. Only one-fourth could be classed as big spenders. Most lived on considerably less than $1 million a year, and some on less than $200,000.
Interestingly, Mr. Packard found that more than one-half of his 30 super-rich subjects had to be rated low in terms of social responsibility, with a record of contributions to charity that appeared to be at best minimal when measured against their assets. This is consistent with a recent study conducted by the Council on Foundations in conjunction with the Yale Program on Non-Profit Organizations. That study concluded that the greatest holders of wealth tend to give only a tiny percentage of it while still alive. There are, of course, some splendidly deep pockets, like those of An Wang, founder of Wang Laboratories, who has become this state's leading patron of the arts, or David Packard, co-founder of Hewlett-Packard in California, who is in the process of systematically turning over nearly $2 billion of his assets to good causes. They are, unfortunately, the exceptions. Few of today's ultra-rich would subscribe to the principles of the great steel tycoon, Andrew Carnegie, who declared that "a man who dies rich, dies disgraced." (As it turned out, Mr. Carnegie didn't quite achieve his goal of dying poor — but he gave it a real college try. For nearly 20 years after selling U.S. Steel he devoted himself to getting rid of the enormous proceeds, principally by the commendable device of building several thousand public libraries in small towns throughout the nation. At his death — which occurred in 1919 at Shadowbrook Cottage, scarcely a mile from where we now sit — only about $10 million of his $350 million fortune remained.)
The question I raised at the start of this paper remains to be answered. Can fortunes in the $100 million to $10 billion range be justified today — especially when the great bulk of the wealth is merely passed on to heirs who typically have done nothing to earn it and are unlikely to devote a significant portion of it to worthwhile social purposes? And more particularly, can we afford a continuation of the present trend, in which the already enormous inequities are becoming more so as a smaller proportion of the population acquires a larger share of the total wealth?
The answer, I submit, is no. Any kind of wealth that is used to generate legal economic activity has some value to the general economy, and any society that is to thrive needs a surplus of wealth after its citizens meet necessary living costs, for investment in economic growth. But a sensible balance is needed. As Lester Thurow, the MIT economist, has pointed out: "If the wolves ate all the caribou, the wolves would also vanish." There is no real justification for letting people acquire vastly more than they can possibly spend, and there is almost an element of indecency in having so much of the national wealth tied up in so few hands when the nation has an abundance of urgent social problems along with a staggering national debt. Both the growing irrelevance of large fortunes and the many negative consequences for society in permitting them to proliferate, raise important questions. Clearly, in my opinion, there is need for a national policy that put the concentration and perpetuation of vast accumulations of private wealth under closer public control.
The Federal tax system in its present form is not a particularly satisfactory way of doing this, mainly because taxes are based almost entirely on annual income — wages, fees, dividends and profits from the sale of assets. While the ordinary citizen's income amounts, typically, to at least 95 percent of his wealth, the billionaire's income may be less than one percent. If he has good estate planners, his income may indeed be just enough to pay his bills. He may take no salary, or only a nominal one. He may place his wealth in land or in stocks with negligible yields — the kind of investments that simply grow and grow with no federal tax reckoning until sale or death, by which time competent estate lawyers will have dispersed most of the taxable assets through trusts and other strategies.
This problem has suggested to Vance Packard and many economists the desirability of instituting a direct tax on wealth — specifically, a progressive annual tax on that portion of a citizen's net worth that exceeds a very high base — say $25 million, at present levels. It is not a radical idea: At last count, 17 nations, mostly in Western Europe, were already doing it. Its obvious selling points in this country would be as a means of simultaneously producing tens of billions in new revenue and stimulating the rich to invest idle money, while making a real start toward reversing the current trend toward concentration of wealth in fewer hands.
The logical companion policy in any effort to keep the gap between the very rich and the rest of us from continuing to widen would be to institute much tougher limitations on the transfer of wealth in estates at death, or by gift during the donor's lifetime. Vance Packard's proposal — which seems to me rather too lenient — is that no one should be allowed to transfer by will, trust or outright gift (except, of course, too a spouse) more than $25 million in 1989 dollars. Until that ceiling (beyond which there could be no further transfers) were reached, current tax rates on transfers would prevail. Contrary to the contention of many economic conservatives, this wouldn't require the dismantling of family enterprises. There are many way to keep a controlling interest in a family business — most simply by issuing two kinds of stock, one with voting rights and one without, and keeping the voting stock within the family.
As Mr. Packard points out, imposing such an absolute ceiling on the amount of assets that could be transferred to heirs would produce a sustained explosion of benevolence, to the great benefit of numerous worthy causes and society in general. Creation of foundations has been out of vogue with the super-rich since Congress tightened them up two decades ago by requiring that at least five percent of their funds must be distributed to charitable causes each year. A ceiling on transfers to heirs would revive foundations overnight. Wealth holders confronted with the alternative of enriching Uncle Sam would certainly correct the situation in which significant philanthropy doesn't begin until death, and even then on an average scale that is not notably generous.
My own sentiments are pretty close to Mr. Packard's on this point, but I have no illusions about the extreme difficulty of getting his modest proposals written into law, at least until the rich get a lot richer and the rest of us a lot poorer. A favorite theme of mine for many years has been that while I don't begrudge a man's right to make as much money as a he legally can, I do think it grossly unfair that the beneficiaries of his acquisitiveness should be heirs who probably couldn't have made it on their own and who, in any event, have already been given a substantial head start in life educationally and otherwise. I myself would be happy to see an inheritance tax of 100 percent, but what has always amused me is that when I espouse this argument, the people who object to it most vociferously are often the ones who have the least prospect of receiving any significant inheritance and the least prospect of having any significant bequests to leave to others. Like the weekly buyers of lottery tickets, they do not take kindly to killjoys who threaten their secret dream that someday, somehow, lightning will strike.
There is another factor at work here, too: a sneaking admiration for great wealth that has been characteristic of the lower economic orders since time immemorial. I remember that in my salad days, when I spent more time than I should have at the Pillars, Bill Monahan's colorful but now defunct** roadhouse in West Lebanon [N.Y.], a framed sign behind the bar asked, "If you're so smart, why aren't you rich?" It is, of course, an outrageous question, suggesting as it does that the highest pursuit of human intellect is the acquisition of money. But it reflects a belief that is probably held devoutly by most working stiffs as by the rich themselves. It helps explain why, except in times of deep economic distress, populism is not really very popular.
*William S. Annin, a Club member and Berkshire Eagle columnist
**The original roadhouse was defunct in 1989, but a successor establishment continues in the same location today.
Monopoly photo by Giovanni Orlando, used under Creative Commons License.