Serious Money

excerpted from the book

Wealth and Democracy

a political history of the American rich

by Kevin Phillips

Broadway Books, 2002, paper

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Franklin D. Roosevelt, 1936
We know now that Government by organized money is just as dangerous as government by organized mob ...

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The strongest turning away of the United States from great wealth and its abuses in the name of reform and democracy occurred under Theodore Roosevelt, Woodrow Wilson, and Franklin D. Roosevelt in the first four decades of the twentieth century.

The Republican Roosevelt-GOP moneyman Mark Hanna called him "that damned cowboy"-was the first president to seriously grapple with the excesses of the Gilded Age. His predecessor, William McKinley, assassinated in 1901, had been a major of Ohio Volunteers in the Civil War, the last U.S. chief executive to have worn Union blue. Although acknowledged as a friend of the workingman by the American Federation of Labor, McKinley made few speeches in his 1900 reelection campaign, leaving the feistier language to his vice presidential running mate.

[Theodore] Roosevelt, of course, thrilled to a fight. Urban-bred, Harvard-educated, and too young to have been in the Civil War, TR chose foes who, instead of blue or gray, wore the diamond stickpins of "economic man"-the organizers of the great trusts, the stockjobbers, the "malefactors of great wealth," and the "criminal rich." They were people to be scrutinized, not admired. His actions rarely matched his rhetoric, but even mere words from the White House warmed the Progressive climate. In 1899, as governor of New York, Roosevelt had exchanged fears with historian Brooks Adams about the country being "enslaved" by the organizers of the trusts. They talked about Roosevelt's leading "some great outburst of the emotional classes which should at least temporarily crush the Economic Man." And now that he was president, Roosevelt could wield his influence nationally.

The turnabout was extraordinary. Although Bryan had lost his political battle in 1896, within six or seven years many of his ideas and issues were marching forward again-and even winning-under more sophisticated Progressive leadership. Years later, Bryan's widow, editing his memoirs in 1925, claimed as his legacies the federal income tax, popular election of U.S. senators, publicity of campaign contributions, woman suffrage, a department of labor, more stringent railroad regulation, monetary reform, and, at the state level, initiative and referendum.

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... William Jennings Bryan ... by remaining a political force through 1914 ... bolstered Progressive issues. The Republican Party had its own Western ex-Populist wing as well as a more elite eastern urban reform contingent. Much of this gentry, including Roosevelt, had shunned Bryan in 1896. Now they embraced many of the same ideas. Republican governors like California's Hiram Johnson, New York's Charles Evans Hughes, and Wisconsin's Robert La Follette took Progressive positions-La Follette, moving to the U.S. Senate in 1906, was an especially fierce advocate-and Roosevelt also could frequently count on the reformist wing of the Democratic Party.

The result was a steadily enlarging Progressive record and agenda. As part of the running tide, in 1903 a U.S. Department of Commerce and Labor was established, with a bureau of corporations authorized to investigate corporate behavior. Railroad rate legislation, hitherto ineffectual, was given backbone by the Hepburn Act of 1906. The Pure Food and Drug Act of the same year struck at adulterated or fraudulently labeled products. In 1906, Roosevelt offered a sweeping reform program-income and inheritance taxes, federal licensing of corporations, and prohibition of corporation political funds. And by 1910, no longer in the White House and turning radical, he foreshadowed the even bolder tenor of his imminent independent Progressive presidential bid. "Every man," said T, "holds his property subject to the general right of the community to regulate its use to whatever degree the public welfare may require it."

The zenith came in 1912. On a new-party platform that ranged from popular recall of judicial decisions to minimum wage standards for working women, Roosevelt split the Republican vote, electing Democrat Woodrow Wilson, also a progressive. The U.S. Socialist Party simultaneously reached its own high-water mark with presidential candidate Eugene Debs garnering almost a million votes and over a thousand Socialists winning state and local office. The irony was that some of Roosevelt's own leading third-party supporters had come from Wall Street-Morgan partners like George Perkins and Frank Munsey, partly committed to restraining the candidate, but also well aware that it might take Progressivism to head off socialism.

Bolstered by these convergences, Wilson's first two years in the White House produced the Sixteenth and Seventeenth Amendments to the U.S. Constitution, which respectively authorized a federal income tax and required direct election of U.S. senators to replace their selection by state legislatures, as well as the Federal Reserve Act, the Clayton Antitrust Act, and the establishment of the Federal Trade Commission.

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[World War II] outbreak in the summer of 1914 initially unnerved U.S. wealthholders. As the European powers mobilized, the New York Stock Exchange, fearful that foreign dumping of securities might collapse prices, suspended trading and remained shut for almost four months. After trading resumed, however, the Dow-Jones Industrial Average soared in 1915 and reached a new high in 1916 as the U.S. economy began to hum with the profits of producing war material for Europe (not until U.S. entry into the war in 1917 did income taxes, excess-profits taxes, and government regulation begin to bite).

The rate of inflation, war's seemingly inevitable Fifth Horseman, peaked in 1917-19, but the price index continued to rise into 1920, by which point it had doubled. As in the Civil War, workers lost ground because their wages did not keep up. Farm prices, however, rose enough to catapult Iowa farm values to the record high for 1920 shown in Chart 2.2. For business, weighty taxes and regulation kept wartime inflation from being the broad business incubator in 1917-18 that it had been in Civil War days.

War's outbreak in 1914 withered the old Progressive impetus. But once the U.S. declared war and mobilized in 1917, government regulation of agriculture, industry, and railroads proceeded apace, fulfilling a tougher set of interventionist and even Socialist objectives. By years' end Washington was operating the nation's railroads. The War Labor Board, in turn, had forced collective bargaining and the eight-hour day on substantial segments of industry.

Even so, the world war's half decade was lucrative for corporations and the rich. In 1915 and 1916, the lush years before U.S. entry, the top 1 percent had roughly the same share of income and wealth they would register again in 1929. Companies supplying the military had a particular field day. From being just a munitions maker in 1914, duPont profited greatly enough from U.S. wartime seizure of German chemical patents to become a global force in that industry by the 1920s. In the meantime, company profits jumped from X6 million in 1914 to $82 million in 1916. The postwar value to duPont of plants built and governmentally underwritten in wartime was added gravy. Revealingly, some of the biggest drumbeaters for U.S. war involvement and profit-makers from it-J. P. Morgan, the duPonts, Marcellus Hartley Dodge, and Charles Schwab-were from families that had supplied the Northern military during the Civil War.

The stock of Bethlehem Steel, run by Charles Schwab, leader of the Armor Trust, climbed from 33 in July 1914 to a wartime peak of 600. General Motors shares soared from 78 to 750. Copper profits went over the moon. An index of nine ordnance stocks jumped 311 percent in eighteen months. Stuart Brandes, in his history of U.S. war profits, recalled volatile profits and "tumultuous days on Wall Street and on regional commodity exchanges as fortunes were made and occasionally lost. Successful stock and commodity speculators became known, if male, as 'warhogs' and, if female, as 'warsows.' "

War, the reformers complained, was restoring the fortunes of capitalists that the Progressive era had put on the defensive, and subsequent investigators cataloged some egregious examples-over $ 1 billion spent for combat aircraft, with none delivered, and so on. Popular indignation faded with war memories, but rekindled after the 1929 Crash returned bank and corporate behavior to the spotlight. In 1935 the popular magazine American Mercury portrayed the war as "No. 4" in its series called "Thieveries of the Republic." The "Merchants of Death" became another well-worn phrase.

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... periods of war-generated inflation have often been followed by disinflationary booms-the Gilded Age, the 1920s, and the 1980s and 1990s-in which many Americans are left out, but heyday psychologies dominate until a major bubble breaks.

This pattern was vivid in the twenties. Conservatism held sway over both major parties, and when Wisconsin senator Robert La Follette ran for president as a third-party Progressive in 1924, his 16.6 percent of the national vote-concentrated in farm, mining, and urban labor districts- was taken as proof of no great appeal amid a prevailing bipartisan conservatism.

Tax cuts were the first pillar of boom-era politics. In 1921 the GOP Congress had repealed the excess-profits tax and reduced the maximum income surtax from 60 percent to 40 percent. Then the Tax Act of 1926 in turn repealed the gift tax and reduced the income surtax and estate-tax maximum rates from 40 percent to 20 percent. In addition, Secretary Mellon's massive combination of upper-bracket tax cuts, refunds, and remissions, legal and otherwise, threw kerosene on what were still small speculative fires.

Reduced federal spending, a second encouragement, took shape as Woodrow Wilson's wartime budget deficits morphed into peacetime surpluses big enough to reduce the federal debt from $24 billion in 1920 to just $16 billion in 1930.

Deflation, the third fuel, replaced wartime inflation. The happy combination of mild deflation and a large budget surplus, a first since the 1890s, allowed the Federal Reserve System and the banks to pursue precisely the expansive monetary policy-abundant credit at relatively low interest rates-businessmen and investors craved.

Easy consumer and private mortgage lending, the fourth tinder, fed the boom by more than doubling from $17.3 billion in 1922 to $38.3 billion in 1929. The siren song of advertising (especially through the new radio broadcasts), paired with the new temptations of installment credit, served to convince millions of Americans to buy Dodge coupes, Frigidaires, oil heating systems, and Chris-Craft mahogany speedboats. With 1927-29 wage levels only slightly higher than in 1919-20, many people bought the new semiluxuries with money diverted from necessities. The Lynds, in their study of Middletown, found telling examples. Of twenty-six working-class families lacking bathroom facilities, twenty-one had automobiles. Companies like Beneficial Finance and Household Finance, small potatoes in 1920, grew 30 percent a year. Buying on time soared from several hundred million dollars a year in 1920 to $7 billion by 1929, by which time extending credit to consumers had become the nation's tenth biggest business.

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Corporate restructuring through mergers and holding company for nations, sometimes good for productivity, also helped investment bankers and promoters to price up assets and stock offerings. In 1919, 89 mergers had involved 527 concerns; in 1928, 201 mergers repackaged 1,259. So many family businesses were pulled into the corporate orbit that nearly 20 percent of U.S. national wealth shifted from private to corporate hands. So enlarged, the corporate share of national wealth rose to about 30 percent, and the largest 100 corporations came to command about half of the total U.S. industrial net income. Holding companies were another highlight of twenties restructuring. According to the New York Stock Exchange, of the 573 companies whose stock was traded actively in 1928, 395 were both holding companies and operating companies, and 92 did nothing but hold other companies' securities.

In retrospect, of course, the blaze of opportunity was turning into a speculative conflagration. Paper entrepreneurialism helped make the boom of the twenties much more stock market-driven than even the booms of 1898-1901 and 1904 to 1907, which had also accompanied re structurings-the rise of the great trusts and the Morgan-orchestrated rationalization of industry after industry. As a greater share of the national economy came under the corporate umbrella, more of its components and transactions were also being financialized-pulled within the (rapidly expanding) purview of bank loans, securities, or financial markets.

The mania for common stock was also telltale. Until the twenties, the preferred stock of corporations had been just that-senior securities preferred by investors over common stock because of their cash dividends. Trading volume in common stock was constrained accordingly. Then, in 1920, the U.S. Supreme Court ruled that corporate dividends paid in stock were not taxable. Thereafter, the twin psychologies of sidestepping ordinary income tax rates and speculating for capital gains instead of seeking cash dividends pushed common stock to the forefront. New offerings grew from $30 million a month in 1926 to $800 million a month in early 1929 and a billion dollars a month by late summer.

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Stockowner ranks expanded from under one million in 1914 to a plausible estimate of six to nine million individuals and some five to six million households (out of 29 million households in the nation) in 1929. "Ma Bell" alone-the American Telephone and Telegraph Corporation-had 139,000 shareholders in 1920 and 567,000 in 1930. This influx helps explain both the editorials about the new "democracy" of share ownership and the Dow-boosting expansion of annual volume on the New York Stock Exchange from 143 million shares in 1918 to 1.125 billion in 1929.

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The Dow-Jones Industrial Average, after spending the first part of 1929 in a range slightly above 300, put on a summer sprint to September's peak of 381. Over the next three years, and predicted by hardly anyone, the Dow tumbled 340 points, bottoming in July 1932 at 41.

The term "Crash" is also a bit of a misnomer. Despite unfolding into the biggest economic downturn in U.S. history and a grim reaper of net worth from Bangor to San Diego, the events of 1929-30, unlike previous panics, caused no major investment firm to fail during that time. Pynchon & Co. was the first in 1931. From September 1929 to August 1932 the market averages took almost three years to fall the distance climbed in the previous eight. After a winter rally following the brutal first autumn, there was no new precipice, just a long downhill slope.

Commentators usually explain the market's descent as a blend of several causes. One involved how the 1928-29 overproduction of goods, which the public could not afford to keep buying, was already hinting a recession, so that autumn 1929 weakness in construction and auto and steel production helped prime the stock market for scared selling. A second blamed Federal Reserve willingness to let the money supply shrink in 1930-32 for turning a bad recession into a depression. Nor was there any other global "lender of last resort."

By a third explanation, stock market tremors had scared overextended banks in the U.S. and abroad into cutting back loans and international trade financing, which deepened the economic crisis. A fourth factor was the collapse in the mid and late twenties not just of U.S. crop prices but of international commodity prices-in rubber, coffee, sugar, and tin, among others. And most experts concurred that souring business and consumer confidence and the widening 1930-33 failures of U.S. and foreign banks fed one another.

The economist J. Kenneth Galbraith put more emphasis on the ripple effect of the stock market itself. The initial autumn free fall, which knocked the Dow down by some 40 percent, spread into the real economy-as, for example, declines in freight-car loadings, commodities, and steel ingots. And once the stock slide resumed in spring 1930 following the late-November to March rally, the market slump remained a relentlessly negative psychological backdrop through mid-1932.

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However, because the rich of the 1920s and 1930s got about three-quarters of their income from dividends and capital gains, the corporate and securities debacles had to be devastating. The market value of the stocks traded on the New York exchange alone dropped from $89.6 billion on December 1, 1929, to $15.6 billion on July 1, 1932. The ranks of millionaires slimmed almost in proportion, from 25,000-35,000 in 1929 to some 5,000 in 1932-33.

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... during the 1935 hearings before the Senate Finance Committee on I the Roosevelt administration's proposed Wealth Tax Act, U.S. Internal Revenue Service counsel (and future U.S. Supreme Court justice) Robert H. Jackson testified that whereas fortunes could once be spent by the next generation, "now they not only perpetuate themselves, they grow.... Furthermore, such estates are largely perpetuated in trusts, and every legal and economic obstacle to their dissipation is employed.... Most of the large estates as at present managed, we find, not only perpetuate themselves but are larger as they pass from generation to generation." The persistence and growth of inherited fortunes over the remainder of the twentieth century would make Jackson's words prescient.

The downturn that began in 1937 reversed as war clouds formed over Europe. The thicker they grew over Poland, Austria, and Czechoslovakia, the brighter were the skies for America's own economy. The year 1939 was better, 1940 better still, and then Pearl Harbor turned on the lights in factories, warehouses, and dockyards from Maine to California. Recovery came fastest along the two coasts, producing remarkable upsurges in the average income per family between 1938 and 1942: in Boston ($2,455 to $3,618), Hartford ($2,207 to $5,208), New York ($2,760 to $4,044), Washington, D.C. ($2,227 to $5,316), Los Angeles ($2,031 to $3,469), and San Francisco ($2,201 to $3,716).

Good economic reasons, at least, underpinned war nostalgia. Few conflicts have spread so much money so widely. Ready for a giant jobs program, Americans got one-in the first six months of 1942 federal procurement officers placed orders for $100 billion worth of equipment, more than the U.S. economy had ever produced in a single year. By the end of 1943 money was being spent at five times the peak rate of World War I. Engineers, technicians, specialists, and skilled workers seem to have been the biggest gainers, along with farmers-the unfailing beneficiaries of wartime food needs-and those of the untrained able to develop skills. Workers able to shift to a war production job often found their wages climbing by 20, 30, or 40 percent The pay of women factory operatives, for example, rose 50 percent just between 1941 and 1943 Between 1939 and 1945 wages in manufacturing industries went up by percent while the estimated cost of living rose only 29 percent because o price controls. Many who were unemployed as of 1937 six or seven years later found themselves able to buy war bonds.

Wartime taxes on the rich were close to punitive. The bite on family heads earning the average $40 to $50 a week was not. After the deprivations of the thirties, wartime rationing, not taxes or lack of money, was what limited public buying. Purchases of expensive clothing and jewelry store . Used cars were at a premium. And despite food rationing, the number of supermarkets climbed from 4,900 in 1939 to 16,000 in 1944

At war's end, Americans were rolling in cash. Average weekly pay had been boosted from $24.20 in 1940 to $44.39 in 1945, not just by high wage rates but by huge overtime and the earnings of 6.5 million women mostly middle-aged and married, new to the workforce. Many families had their first discretionary income. Between mid-1943 and mid-1945 Americans stashed about a quarter of their take-home pay. By Japan's surrender, an amazing $140 billion was in liquid assets (mostly in small savings accounts and war bonds) - twice the entire national income for 1939! By one estimate, this was enough to buy three times the amount of consumer goods that could plausibly be produced during the first year of peace.

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Back in 1939, the top fifth of male wage and salary recipients had collected 48.7 percent of the total while the three middle fifths got only 47.8 percent. By 1949 the top group's share had slimmed to 40.1 percent and the middle three were receiving 55.3 percent. Family income distribution over the full decade showed much the same: a shrinking share at the top (and to a lesser extent in the highest 10 percent). The improvement in compensation concentrated in the 50th to 89th percentiles: the middle class, blue-collar as well as white-collar.

The Great Compression, so favorable to the middle class and labor at the (seeming) expense of the top 1 percent, continued into the 1950s. Politically, at least, the middle-class ethos ruled. To commentators like Frederick Lewis Allen, Robert Heilbroner, and David Riesman, the rich had become "inconspicuous consumers," either suffering from a guilt complex or afraid of giving visible offense. Their big houses had been sold off to become orphanages or old-age homes, and fewer upper-income families had servants. In 1953 the new Republican administration of Dwight Eisenhower, far from imitating the deep tax cuts of Treasury Secretary Andrew Mellon after the First World War, decided against seeking a reduction in the 91 percent top income tax rate, which had been kept in effect after World War II.

The take-home pay of America's best-compensated corporate chief executives was only a shadow of the $20 million and $50 million net proceeds widely reported a half century later in the Second Gilded Age. Frederick Lewis Allen, in The Big Change: 1900-1950, calculated the disposable income of the best-paid CEO of 1950, Charles E. Wilson of General Motors: "Let us suppose that it had all been handed to him in cash in 1950, and that he had had to pay a federal income tax on the whole $626,300, and on nothing else-and without any exceptional deductions. The government would have taken some $462,000 of it, leaving him only some $164,300."

Beneath this democratic imagery, however, another contrary sea change was gathering. U.S. technology and manufacturing had been revolutionized by wartime demands. Executives in company after company found themselves selling products commercially unfeasible before Pearl Harbor. Petroleum, in particular, had been made to yield a rainbow of profitable wonders: synthetic rubber, plastics, fibers, and petrochemicals. Victory over Germany and Japan, besides ending domestic constraints, also gave U.S. corporations and banks new global opportunities and markets. In June 1949, the Dow-Jones Industrial Average ended two years of muddling in the 165-190 range (1927 levels), transcended postwar depression fears, and began what would be a two-decade leap. The top 1 percent of Americans, who owned about half of the stocks, enjoyed quiet gains that dwarfed those of ordinary wage earners.

With capital gains excluded, the income statistics for 1947-57 confirmed the continuation of the Great Compression into peacetime. The greatest share of a rapidly expanding national income went to Middle America, the slimmest gains to the top 5 percent.

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Like the booming twenties, which President Reagan sought to imitate with tax cuts and permissive regulation, the eighties began slowly in the uncomfortable bowl of a deep downturn caused by the high interest rates needed to squelch inflation. Thus, when Forbes magazine, following irregular compendia elsewhere, published its first annual list of the four hundred richest Americans in 1982, the debut made no great splash. Circumstances were not particularly celebratory. In historical terms, neither was the makeup of the new list, so much a product of oil price inflation, and showing a high ratio of inheritance to new industrial achievement.

Next to the titans of the Gilded Age, the individual billionaires of 1982, five of them children of Texas oilman H. L. Hunt, represented a telling slippage in both real wealth and political and economic stature. To make the wealth comparison requires turning the dollars of, let us say, 1910 into their 1982 equivalents

Multiplying the estimated fortunes of 1900-1914 by eleven, we find John D. Rockefeller with a 1982 equivalent of $11 billion, Andrew Carnegie next with $4.5 billion, and so on. The actual 1982 list, by contrast, included thirteen individual billionaires, led by little-known shipowner Daniel Ludwig, with $2 billion. Parenthetically, the list of thirty below has been reconfigured from the original list by combining members of the same family, notably Rockefellers, duPonts, Hunts (5), Basses, and Mellons.

Like the bottom-scraping Dow-Jones Industrial Average, the first Fortes list, with its unprecedented number of oilmen and oil families as well as timber, commodity, and real estate magnates, portrayed an economy in the stagflationary doldrums. The only technology fortunes in the top thirty were those of computer makers David Packard and William Hewlett. The prominence of so many families also reflected the lack of new fortunes or new wealth-creating forces beyond inflation. Speculation in the press ran more to the death of shares or equities-the theme of a famous Business Week cover-than to the birth of a new wealth generation.

Policy and politics were also in disarray. The supply-side economists advising the Reagan White House, unhappy in 1982 as Congress and the White House negotiated legislation partly rescinding the 1981 tax cuts, gloomed through the year about their advice being ignored, their great fiscal experiment undermined. The Farm Belt was in trouble, and the Great Lakes industrial region was smarting under its new, dismissive nickname: the Rust Belt. Only a short time after the Forbes list appeared U.S. unemployment topped 10 percent. By the end of the year, median family income had slipped back to its 1974-75 lows.

As in the early twenties, however, the darkness soon brought a dawn. Although this volume splits the eighties and the nineties into partly separate booms, one can point to them jointly as decades of capital markets generous to new enterprise. Supply-side author George Gilder, among the few conservative thinkers to foresee the fruits, preached endless assurance that microprocessor, laser, and microbiology companies-small, entrepreneurial foxes already running circles around the staggering elephants of the Dow-Jones-would justify giving capitalism a new political mandate. Technology was gathering force in the eighties, dropping hints of greater things to come. Sector firms were among the stock market highfliers of 1979-82: Tandy, Teledyne, Wang Labs, Prime Computer, Datapoint, Rolm, MCI, and many more. A decade earlier the stock market's "Nifty Fifty" had also had a high-technology vanguard: Polaroid, Xerox, Electronic Data Systems. Breakdowns of manufacturing spending during the 1979-83 slump and turnaround showed high-tech industries alone performing in a steady uptrend.

At the same time, Gilder's technological enthusiasms considerably exceeded those of the White House. Ronald Reagan had been speaking more broadly in saying, "What I want to see above all is that this remains a country where someone can always get rich." He and his treasury secretary, Donald Regan, a former chairman of the giant stockbrokerage firm Merrill Lynch, talked about replicating some of the moods and policies of the 1920s. Their most conspicuous inattention was to the earlier decade's technological underpinnings.

No Henry Ford or Thomas Edison, leading lights of the twenties, stood out in the eighties. Productivity gains were still in their Santa Clara and Palo Alto adolescence. The entrepreneurialism admired and understood by President and Mrs. Reagan was that of their four-decade Southern California acquaintances: movies, real estate, television syndication, publishing, retailing, fashion, and wholesaling. The products that Wall Streeter Regan knew best were financial: stocks, options, and deals. So when high-tech groups like the American Business Conference and the Semiconductor Industry Association looked to Washington for help against foreign business-government collaboration, the president and his advisers were scarcely more attracted to helping high-tech than to pushing a labor-backed "industrial policy" on behalf of embattled Rust Belt industries. Under both Reagan and Bush, conservative governments declined to "pick winners."

Thus, while the Reagan years brought economic growth, especially in 1984-85, technology made no great leap forward, either in stock market capitalization or in productivity, as Chart 3.25 will illustrate. Looking back from the nineties, many Silicon Valley venture capitalists dismissed the eighties as a weak prelude. Most of the nation's economic growth came in the services sector. And too much, critics quipped, was financed by a credit card. _ ~

Four engines powered the expansion of the economy that began in 1982. Military spending increased enormously, pouring money into defense contractors and military installations. Corporate investment grew, favored by 1981 tax legislation, putting substantial money into computers but far more into office buildings and construction. The third engine was debt, which ballooned as governments, corporations, and individuals borrowed as rarely before, plowing most of that back into the economy. Fourth, much like the 1920s, financial activities accelerated-from stock market gains and their wealth effect to mergers and leveraged buyouts, dealmaking, and the steady growth of bank and investment sector employment. Expanding debt and the profits of innovative finance, both frequent boom companions, also stimulated luxury consumption.

Beyond applauding markets, the economic ideology of mainstream Republicanism during the twentieth century was to promote wealth in general rather than specific industrial sectors. Not surprisingly the disinflation, deregulation, and tax cuts of the Reagan and Bush administrations favored financial assets, the principal repositories of serious wealth. Between 1982 and 1992 the Dow-Jones Industrial Average trebled in nominal dollars, which meant a doubling even after inflation. Paper entrepreneurs, a term coined by political economist Robert Reich, took an unusual share through merger and leveraged buyout activities. Thanks to stocks, tax changes, real estate, and buyout opportunities, inherited wealth held its place, bolstered by the lack of any major new challenges to the status quo.

The noted economist Charles Kindleberger, in a mid-1990s analysis, capsuled his qualms about the eighties. Much of the money individuals received from the 1981-86 reductions of the top income tax bracket from 70 percent to 28 percent, said Kindleberger, "seems to have been spent on consumption: second and third houses, travel, luxury apparel, cars, jewelry, yachts and the like, rather than being saved and invested. Some savings were held in liquid form to take advantage of 'investment' opportunities in funds for mergers and acquisitions, takeovers, or arbitrage in the securities of companies possibly subject to takeovers; in other words, held liquid for trading in assets rather than being invested in capital equipment for production."

Between 1979 and 1989 the portion of the nation's wealth held by the top 1 percent nearly doubled, skyrocketing from 22 percent to 39 percent, probably the most rapid escalation in U.S. history... the extraordinary extent to which the Reagan and Bush administrations of 1981 to 1993 benefited the top 1 percent rather than the rest of the population. Economist Edward Wolff, noting the nineteenth-century distinction between Europe as the continent of hierarchy and the United States as the seat of opportunity, commented that "by the late 1980s, the situation appeared to have completely reversed, with much higher concentration of wealth in the United States than in Europe."

By 1992, twelve years of Republican presidents had brought little new direction in wealth save for an end to oil domination. Just three of that years thirty richest Americans represented technology: Bill Gates and Paul Allen of Microsoft, and Ross Perot. Otherwise, the economic strategy of 1920s replication, of bolstering corporations and expanding financial assets, had been a roaring success. Wealth had ballooned, making the top individual and family fortunes of 1992 two to three times the size of their 1982 counterparts. The gap between the rich and everyone else was yawning to widths unseen since the 1920s and 1930s.

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