Rearview Mirror

Lords of Creation?

What does it mean for society when the super wealthy are getting ever wealthier both in absolute and in relative terms? I have been pondering the Sunday New York Times June 14 report by Patricia Cohen ("Billionaires' Billions are Increasing Faster than Ever"). The segment of the world's population she highlights is no longer the top decile, or the top one percent, but the top one ten thousandth percent of the top one percent -- or the top one millionth of the population (10^-6) --if I am keeping track correctly of her exponents. Her numbers are a bit confusing. The tycoons' wealth is measured as a share not of global wealth but of global GDP, and since wealth is a measure of accumulation, and income is a measure of flow, wealth statistics will tend to yield a greater degree of inequality in periods of general economic growth. The world's poor obviously must have some income to survive but need not have wealth beyond the minimum of food and shelter. In either case, however, super earners and super accumulators are claiming an ever-greater share, In the mid 1990s the top millionth of global world wealth holders held fortunes amounting to about 6% of global income and today they have reached about 17 percent.

Is this a problem for democratic politics? Or is it just a fact of life, comparable perhaps to the fact that the universe is apparently not only expanding but expanding at an ever-faster rate? Chief Justice Oliver Wendell Holmes Jr. allegedly dismissed Charles Beard's 1913 Economic Basis of the Constitution with the remark that he didn't need Beard to tell him that wealthy men wrote the Constitution. Of course, Holmes had one ninth of the votes to decide on the constitutionality of many contentious issues of the day, but this legal power did not let him save much of the reform labor legislation that a majority of his fellow justices routinely vetoed for the first third of the twentieth century.

The framers of the Constitution understood that economic inequality must have an impact on political decisions, and they largely wanted it that way. Leaving aside the glaring issue of slavery how did disparities of wealth impact institutions? The history of the Roman Republic and of the country, Great Britain, which had ruled the colonies before the American revolution, provided the go-to accounts of the institutions that would be challenging to preserve. (A sad personal note here: the tragic death on June 7 of Gordon Wood, a preeminent historian of early America, an early colleague of mine some 60 years ago and one of the continuing intellectual interlocutors of my late wife Pauline Maier has sent me back to the related historical debates.). A republic required representation, not of the propertyless but of independent male adults; it also required a counterweight to prevent degeneration if the majority attempted radical confiscatory policies. An executive might serve that function to a degree, but it could also become abusively populist. A senate, elected on a more restrictive franchise, was intended to serve as a wise restraint.

The great political debates in Europe and America throughout the nineteenth and early twentieth century concerned this precarious equilibrium. Tocqueville came to believe that their decentralized political assemblies and habits formed by voluntary associations allowed the Americans to avoid the extremes that beset France. The new intellectual discipline of sociology would emerge in part as a response to the tensions that could never be fully resolved, as analysis allegedly replaced normative prescription for William Graham Sumner, Auguste Compte, Hyppolite Taine, Max Weber, and others. The public role of religion, the limits of the franchise, colonial and military policies, the role of prescribed languages in multilingual federations such as Austria-Hungary and later Canada, and the budget (hence taxes and military and social expenditures) became the battlegrounds for emerging parties.

The German sociologist Rudolf Goldscheid (Staatsozialismus oder Staatskapitalismus, 1917) and then Joseph Schumpeter (Crisis of the Tax State, 1918) developed the analysis of what they termed fiscal sociology, which focused on conflicts over the national budget as the key to modern politics. The tendency of modern budgets to claim larger shares of national economic output has been a major phenomenon of modern development. It is not easy to measure. In Scandinavia and Germany budget shares rose to perhaps 55-60 percent of GDP; in the U.S. and Japan they have remained perhaps 30-40 percent. But comparison is tricky: much of the cost of higher education remains as a family burden in the U.S., whereas tuition is largely free in Europe. But if one sums up the three levels of government in the United States, public expenditures are more comparable. The rising levels have not been monotonic; the world wars led public expenditures to rise to 50% and over (perhaps to 60-70 percent in Germany and Russia during World War II). They then fell back although interest payments continued high only to climb again in the 1960s -- this time without the spur of a major war.

Let us pause over public borrowing and interest burdens since these numbers often generate alarm. Interest payments to domestic bondholders are a transfer payment from those who don't hold bonds or gilts to those who do -- regressive, but not a diminution of national income. What does it really mean to defer the costs of borrowing onto the next generation? The expression has often been used with respect to wartime expenses. But the real current costs of a war in terms of manpower and materiel must be met while a war is being fought. One cannot draft the unborn for the armed forces of today. One can defer renewing equipment until after the war and postpone peaceful applications of innovation, as the mass television was largely put on ice in World War II. What societies do in war if they cannot conquer productive resources abroad, as the Germans managed for much of World War II, including about 6 million workers drafted from defeated from abroad, is to shake loose the savings of those at home. This has been accomplished either through voluntary savings or disguised levies -- selling long-term war bonds that will erode in real value -- or compelling central banks to print money and thus silently divert private purchasing power to the state through inflation. As Keynes wrote in his 1940 tract, How to Pay for the War, inflation is the easiest way politically; it is not voted on, and the cost of the levy can be concealed by price controls or revealed only later (as has been now occurring in the U.S. under President Trump).

The current alarm over social security is one of our own choosing. New Deal policy makers opted in the 1930s to fund social security from its own budget so it could be sold as a form of institutionally guided individual savings, co-financed by employers and employees. Essentially it is a disguised pipeline that takes income from those currently working to pay for those no longer in the labor market. The French fixate on retaining an early retirement age; we fixate on the shielding of income and on the appreciation of assets. All are political decisions; each is obviously politically charged. Retirement ages might be differentiated so that, for instance, jobs involving physical labor qualify for retirement earlier than office work. We could raise the ceiling of the income currently taxable for social security; we could allocate a portion of a steeper progressive income tax to retirement pensions. Or we could in theory levy a wealth tax, which at low rates becomes essentially a tax on the income from financial assets. Since much of our philanthropic, medical, and educational activity is premised on tax entitlements, a wealth tax would admittedly require a major restructuring of their support. But society in aggregate does provide for their maintenance now, and over time could provide for alternative financing. It has already done so massively since, say, the Cold War.

The meaning of property has always been contested. The invention of the corporation and the trust were momentous conceptual advances that may have encouraged progressive economic advances but certainly provided a mystique that enhanced the social and political power of those who utilized these structures. Most of us see our earnings as compensation for our individual efforts. What we have not spent in our lifetimes we should be able to give to our heirs. Other countries have protected that right differentially according to the degree of relationships: a child gets more than a distant cousin. But the premise of American public finance is that the individual is or has been the source of income and wealth.

What is being implicitly debated today is not just the distribution of income and wealth but claims to distinction. The individuals who have helped to steer the admittedly massive transition into the digital era, whether as inventors, organizers of innovation, or clever financiers, believe with some justification that they have brought about a great increase in the wealth of society -- even allowing for all the costs of the transition for those who have been or will be displaced. But it is also the inherited structures of learning and government to which many others have contributed as well that have provided the framework for current socio-technological advance.

The princes of the digital era, moreover, are claiming great political deference as well as inordinate wealth. Deference is not quite power, but the compatibility of deference and democracy have been debated since the late eighteenth century. What rewards should deference bring with it besides distinction? Are democracy and deference in contradiction, or does democracy require deference to contain its passions either for levelling or for Caesarism? Gordon Wood discussed all these debates as they arose in the early American republic. It may be time to revisit them, for I believe they have become relevant again.

June 15, 2026