australianvoice (australianvoice) wrote,
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Why the Rich Are Getting Richer...Again Part 1: 1865-1943

The Most Important Social Problem in the Anglo-Saxon World

The most important social problem in the Anglo-Saxon world today is the growing wealth of the super-rich while the rest of us face austerity with declining wages and living standards.(1) For decades there has been a well-organized campaign to explain and justify policies which in reality only benefit the super-rich investors who control Wall Street. The program to change our understanding of the super-rich began shortly after WWII with the Cold War and Senator McCarthy's hunt for alleged "Communists" in the US.

This plan has been so successful that nobody who understands the power of Wall Street and its ability to shape our lives can explain their views in the carefully censored mass media. Why? Because it is owned by the very people who share in that power by virtue of their immense wealth. The best example of this is the media empire of Rupert Murdoch. Are his publications going to tell us how Wall Street is robbing us blind when he is one of the people who benefit from these policies?

The first part of this article will look at the circumstances in the US which led to the extreme concentration of wealth by the start of WWI. It will also show what ordinary people of the time thought of these people. They were not honoured as "successful entrepreneurs" as they are today. The second part will show how the power of the industrial and banking monopolies in the US was limited from 1932 until the time of Reagan and Thatcher. The next article, covering the period from 1943 to the present, will examine how the super-rich were able to remove all the laws which were developed to restrain their power. This will show us how they now have power and wealth which rivals what they had in the "Golden Age" before WWI.


The Rich Have Not Always Been Getting Richer
From the end of the Civil War in 1865 to the end of the 19th century there was a significant increase in extreme wealth in the US. The percentage of wealth held by the richest 1% of the US and UK in 1910 was 18% and 22%. This concentration of wealth may have been even greater than what we see today. However the share of the wealth owned by the super-rich began to fall after WWI and this trend continued after WWII. In 1950 the share of total wealth owned by the 1% in the US declined from 12% to about 8% in 1980, and in the UK it declined from 12% in 1950 to 6% in 1980. A similar decline in the percentage of wealth held by the richest 1% can be seen in Australian as well. The share of the national wealth held by the top 1% fell from 14% in the early 1950s to around 5% by the early 1980s.



This gives us three different questions:

Why did the wealth of the richest 1% grow so much by 1910?
Why did the wealth controlled by the 1% decline from the beginning of WWI to the 1980s?
Why did the wealth controlled by the 1% begin to increase again after the 1980s?


Let us begin with the first question.


What Was It Like In The United States 100 Years Ago?
The US of 100 years ago was totally unlike the US we know today. The wealthiest families, some with the still familiar names like Mellon, Carnegie, and Rockefeller. For example, John Davison Rockefeller Sr. (1839-1937) was a co-founder of the Standard Oil Company, the first great U.S. business monopoly. At one point his company controlled 90% of all oil sold in the US. He is said to have been the richest person in US history.(2) In 1911 the US Supreme Court ruled that Standard Oil was an illegal monopoly. At the time it was broken into 34 separate companies, but two of them survive as Exxon and Mobil.


John D. Rockefeller Sr.

The super-rich like Rockefeller were actually despised by most of the population. As a group they were called the Robber Barons, and their activities were carefully scrutinized by many different newspapers and magazines. Popular publications competed with each other to discover the "dirt" on these people and reveal this to their readers. When the heads of the major US banks met to form what is now known as the Federal Reserve Bank, they had to do so with absolute secrecy. If the press had revealed that in this meeting the largest US banks who were apparently competitors were actually going to form a banking monopoly, the public outcry would have made the goal impossible to achieve.


The Muckrakers Reported On The Rich

There were perhaps as many as 100 separately owned newspapers and magazines in the US. There was a genuine free press which published articles by famous investigative reporters known as "muckrakers".

"The term 'muckraker' refers to reform-minded journalists who wrote largely for all popular magazines and continued a tradition of investigative journalism reporting; muckrakers often worked to expose social ills and corporate and political corruption. (...)
"The January 1903 issue of McClure's is considered to be the official beginning of muckraking journalism... Ida M. Tarbell (The History of Standard Oil), Lincoln Steffens (The Shame of Minneapolis) and Ray Stannard Baker (The Right to Work), simultaneously published famous works in that single issue."
(3)

The activities of these Robber Barons were eagerly read because most people alive at the time had heard about or lived through events which today only occur in distant third-world countries. The Robber Barons wanted to keep wages low, working hours long, and refused to tolerate the existence of unions or the activity of striking for higher pay. It is important to look at a few of the more famous events, as our current media and even historians pretend these things never happened.


The US War Against Workers And Unions Went On For Decades(4)
From the 11th May to 10th July 1894 there was a strike against the Pullman Company, which owned and operated railroad sleeping cars used on most U.S. railroads. After wages were significantly reduced there was a wildcat walkout on 11 May. On 5 July, the 1892 World's Columbian Exposition in Chicago was set ablaze, and seven buildings were burned to the ground. The people burned and looted railroad cars and fought police in the streets, until 10 July, when 14,000 federal and state troops finally succeeded in putting down the strike, killing 34 American Railway Union members.

On the 10th of September 1897, 19 unarmed striking coal miners and mine workers were killed and 36 wounded. Most of them were shot in the back by a posse organized by the local county sheriff. On the 8th of June 1904 violent confrontation between the Colorado Militia and striking miners at Dunneville ended with six union members killed. On the 25th of March 1911 the top three floors of a ten-story building in New York City used by the Triangle Shirtwaist Factory were consumed by fire. One hundred and forty-six people died, mostly women and young girls working in sweatshop conditions.

On the 20th of April 1914 the Ludlow Massacre occurred in Colorado. Company "guards" of the Ludlow Mine, engaged by John D. Rockefeller, Jr. and other mine operators, attacked a union tent camp with machine guns, supposedly to get them back of work, and then set it on fire. Five men, two women and 12 children died as a result. From the 22th September 1919 to 8th January 1920 350,000 steel workers walked off their jobs to demand union recognition. Eventually the American Federation of Labor Iron and Steel Organizing Committee was forced to call off the strike in defeat.

On March 7th 1932, three years after the beginning of the Great Depression, an unarmed and peaceful crowd of Detroit residents, estimated at between 3,000 and 5,000, gathered near the Dearborn city limits, about a mile from the Ford plant. The marchers had a petition with 14 demands to present to Henry Ford, including rehiring of the unemployed, health care, an end to racial discrimination, winter fuel for the unemployed, abolishment of company spies and private police, and the right to organize unions. When the march reached the city limits of Dearborn where the Ford factory was located, the police attempted to stop the march by firing tear gas into the crowd, and they began hitting marchers with clubs. One officer fired a gun at the marchers. Eventually the police were joined by Ford security guards, and they began shooting into the crowd. Joe York, Coleman Leny and Joe DeBlasio were killed, and at least 22 others were wounded by gunfire.


Henry Ford

This gives us the answer to our first question. The wealth of the super-rich in the US grew to such astounding levels because any attempt by workers to organize for better pay and conditions was met with violence both from the armed guards of the companies involved, but also by the police and other quasi-military forces which each state possessed.


This Was The Background For Roosevelt's New Deal

This long and violent struggle by working people in the US for better pay, the right to join unions, for shorter hours and safer working conditions also led to significant political organization. For example by 1918, the Socialist Party of America had considerable electoral success, with members holding 1,200 political offices, including electing 1 Congressman, 32 state representatives, and 79 mayors. Today the word "socialism" is seen as evil as "terrorism", but 100 years ago it sounded like a good idea to many workers. After the Great Depression which began in 1929, the situation became much worse because of the very high levels of unemployment. Working people were angry and increasingly better organized. Further the victory of the Russian Revolution showed workers and the 1% that the present situation could be changed.

Even before the election of Roosevelt, the US Senate's Committee on Banking and Currency held hearings which probed the causes of the Wall Street Crash of 1929. The Chief Council of the committee, Ferdinand Pecora, personally undertook many of the interrogations during the hearings. Among others, the committee questioned the president of the New York Stock Exchange, partners in the J.P. Morgan Bank, investment bankers from Chase National Bank and the National City Bank (now Citibank). He and President Roosevelt described these people as "banksters", that is people who acted like gangsters but ran the largest banks. Time magazine featured Pecora on the cover of its June 12, 1933 issue.

There is little doubt that the New Deal of President Franklin D. Roosevelt (1882-1945) provided an important political solution to many of the problems faced by working people in the US at the time. The New Deal consisted of laws passed by Congress as well as presidential executive orders during his first term from 1933 to 1937. One of the first components of the New Deal was the 1933 Banking Act which is also known as the Glass–Steagall Act. This act separated commercial and investment banking, which means that ordinary retail banks must be separated from the speculative activities of investment banks. The importance of this legislation is that the speculation on the stock market by banks was seen as one of the major factors which led to the Great Depression.


President Franklin D. Roosevelt

Other Features Of The New Deal
The New Deal brought in the Wagner Act which guarantees basic rights of private sector employees to organize into trade unions, engage in collective bargaining for better terms and conditions, and take collective action including strikes if necessary. Companies could no longer pretend that unions were illegal or unconstitutional. Henry Ford resisted unions until the beginning of WWII. However Roosevelt simply insisted that Ford accept a unionized workforce in order to get any contracts from the government to make military equipment. The New Deal also led to the Fair Labor Standards Act of 1938, which set maximum hours and minimum wages for most categories of workers.

Another important component of the New Deal was the Works Progress Administration (WPA). The WPA used government money to employ millions of the unemployed (mostly unskilled men) to carry out public works projects, including the construction of public buildings and roads. Almost every community in the United States had a new park, bridge or school constructed by the agency. The WPA made the federal government by far the largest single employer in the nation. WPA also employed musicians, artists, writers, actors and directors in large arts, drama, media, and literacy projects.

The Social Security Act of 1935 attempted to limit the dangers in the modern capitalist society which come from not being employed, being to old to work, or being fatherless child to young to work. By signing this act President Roosevelt became the first president to advocate federal assistance for the elderly. Thus the Social Security Act provided retirement benefits for workers and other welfare benefits for people who cannot, for one reason or another, earn an income to support themselves.


And Eventually There Were Also Tax Increases
The New Deal did see increases in personal tax rates and capital gains taxes, but dramatic increases in the corporate tax rates did not occur until the war years and after. In 1936, the top tax rate on regular income was 79% for incomes over $5 million, and the rate for capital gains was 30%. The top corporate tax rate in 1936 was 15% on profits over $40,000. For a comparison, in 1929, the year of the Great Depression, the top tax rate for regular income was 24% on $100,000 while the rate for capital gains was 12.5%. That same year the top corporate tax rate was 11% on profits over $3000. These rates begin to increase from 15% in 1936 to 24% in 1940 for incomes over $38,000, and peak at 52% for taxable income over $25,000 in 1952.


The New Deal Did Not Die With Roosevelt
President Roosevelt died at the end of WWII, and was succeeded by the Democrat Harry Trueman who continued the New Deal policies. Even the first Republican president after Roosevelt and Trueman, Dwight D. Eisenhower who served from 1953 to 1961, expanded programs of the New Deal. He wrote:

"Should any party attempt to abolish social security and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group of course, that believes you can do these things ... Their number is negligible and they are stupid."(5)

In Eisenhower's last year in office, 1960, the top tax rate for regular income over $400,000 was 91% and the rate for capital gains was 25%. The top corporate tax rate was 50% for profits over $25,000. This shows that even the Republican Eisenhower continued all the main features of the New Deal. It is surprising that the last president to follow up on New Deal programs and domestic spending was Eisenhower's Vice-president Richard Nixon.

“From the first to the last budget for which the Nixon administration was responsible; that is, from 1970 through 1975 spending on all human resource programs exceeded spending for defense for the first time since the Second World War. Funding for social welfare services under Nixon grew from $55 billion in 1970 to almost $132 billion in 1975 making him (not President Johnson) the “last of the big spenders” on domestic programs. This represented an increase from 28% of all federal outlays to 40.4%, compared to a decrease in defense spending in the same period from 40% of all federal outlays (or $78.6 billion) to 26.2% (or $85.6 billion).”(6)

He even floated the idea of a comprehensive health insurance system in 1974, but it never passed into legislation. Unlike virtually all modern industrialize countries, the US still does not have a serious national health system. They do have a lot of nuclear weapons, however, and well armed police.


The "New Deal" In Europe And The UK

In Europe and the UK the ideas of the New Deal did not become a reality until after the end of WWII. The countries in Western Europe do not all have the same social model, but they do share a commitment to full employment, social protections for all citizens, social inclusion, and democracy. Some, like Germany, had a sickness insurance system from 1883. The Nordic countries including Finland had a universal health service by 1964.

In the UK, in spite of post war austerity and the nationalization of important industries, the National Health Service was introduced in 1948. It promised to give free, cradle to grave health care are for everyone in the country, regardless of income. The Labour government also expanded low cost council housing for the poor. They were committed to rebuilding British society as an ethical commonwealth, using public ownership and controls to abolish extremes of wealth and poverty. They wanted to introduce more taxation of the rich and less on the poor.


The "New Deal" In Australia
Australia has a long history of welfare support for non-Aboriginal people. The legislated basic wage – which offered a decent living to a man and his dependents - began in 1908. Considering the intensity of battles over wages in the US, this shows a rather different approach in the new Commonwealth which was only 7 years old at the time. In 1909 the Australian Commonwealth began a means-tested 'flat-rate' age pension, followed in 1910 by an invalid pension. These replaced similar systems which had been introduced by some of the states. In 1912 the Commonwealth introduced a maternity allowance in the form of a lump sum cash grant payable to a mother on the birth of a child.

The Commonwealth Department of Social Services became fully operative in 1941 as a separate department. In 1945 unemployment and sickness benefits began consisting of flat-rate payments subject to an income test. Rent assistance was introduced in 1958 for a single pensioner paying rent, and wholly or substantially dependent on his or her pension. Sheltered employment allowance was introduced in 1967 for persons employed in sheltered workshops and qualified to receive invalid pension. A national health system was introduced in 1975, enabled by the Health Insurance Act 1973.(7)

In Australia there were several government assisted public works programs such as the Snowy Mountains Scheme. This involved both the development of a hydroelectric and irrigation system in south-east Australia. Sixteen major dams and seven power stations were constructed between 1949 and 1974, and constitutes the largest engineering project undertaken in Australia.


The New Deal And the Declining Fortunes Of The 1%

Looking at the US and the UK, it seems that some of the decline in their share of the wealth came from the costs of WWI and WWII. At the same time it is hard to avoid the conclusion that the decreasing share of the national wealth enjoyed by the 1% was due in some measure to the increased levels of taxation which funded the expansion of the "safety net" and welfare provisions introduced from 1933 until the 1970s. As we have seen, the top corporate tax rate in the US had increased from 11% in 1929 to 52% in 1952. In the UK, the highest rate of income tax during WWII was 99.25%, and during the 1950s and 1960s it was still around around 90%. Further, the decline in the share of the richest 1% even during the boom times of the 50s and 60s in the US must be due to the higher wages being paid to most workers. Some even argue that these higher wages could have contributed to the "boom times" because more people had more money, so they spent it on more things than food and accommodation.

This gives us the answer to our second question. The cost of WWI and WWII, the higher levels of taxation of the wealthy, the increased pay of workers and higher levels of spending on infrastructure and welfare all created a significant decline in the percentage of national wealth controlled by the richest 1%.


However The New Deal Was Not Loved By Everyone
President Eisenhower realized that support for the new deal was not shared by everyone. At the time the opponents of these changes kept their thoughts to themselves. As Eisenhower explains, it would have been be politically stupid to attack these policies head on. But the attacks began nonetheless even before the end of WWII.

One of the earliest open attacks on the ideas behind the New Deal came from the novelist Ayn Rand. Born Alisa Zinov'yevna Rosenbaum in 1905 in Russia, she attained success in the US with the publication of her 1943 novel, The Fountainhead. Because the Russian universities had been opened to women for the first time, Alisa Rosenbaum (Rand) was in the first group of women to enroll at and graduate from Petrograd State University. In 1926 she arrived in New York city to visit relatives, but decided to stay and eventually went to Hollywood.

The plot of The Fountainhead "presents a vision of a dystopian future world in which totalitarian collectivism has triumphed to such an extent that even the word 'I' has been forgotten and replaced with 'we'."(8) The opponents of the New Deal needed an intellectual framework, and Ms Rosenbaum was just the person to provide it for them. It is ironic that the only reason she had a decent education was that the new Bolshevik government - which she hated - allowed her to attend university.


Footnotes:

1. Of course this is a problem for the whole world, but there are two reasons for concentrating on the Anglo-Saxon world, and the United States in particular. First the US is clearly the most important country in the world and it determines economic, political and military policy for the many countries over which it exercises control. Second the historical circumstances of each country is different, but the Anglo-Saxon countries are and have been locked together for hundreds of years. Particularly in the last 30 years they have acted as one, and no account of the policies of Australia, Canada, New Zealand or the United Kingdom can be understood without looking at the workings of the US Empire, of which they are the core.

2. https://en.wikipedia.org/wiki/John_D._Rockefeller

3. https://en.wikipedia.org/wiki/Muckraker

4. Details about these incidents can be followed up here: https://en.wikipedia.org/wiki/Timeline_of_labor_issues_and_events

5. https://en.wikipedia.org/wiki/New_Deal#Tax_policy

6. http://www.rockthecapital.com/06/15/richard-nixon-liberal-president/

7. http://www.abs.gov.au/AUSSTATS/abs@.nsf/3d68c56307742d8fca257090002029cd/8e72c4526a94aaedca2569de00296978!OpenDocument

8. https://en.wikipedia.org/wiki/Ayn_Rand
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