American Society for Political and Legal Philosophy
WEALTH DEFENSE AND THE COMPLICITY OF LIBERAL DEMOCRACY
Author(s): JEFFREY A. WINTERS
Source: Nomos, Vol. 58, Wealth (2017), pp. 158-225
Published by: American Society for Political and Legal Philosophy
Stable URL: https://www.jstor.org/stable/26785952
Accessed: 08-09-2020 23:45 UTC
REFERENCES
Linked references are available on JSTOR for this article:
https://www.jstor.org/stable/26785952?seq=1&cid=pdf-reference#references_tab_contents
You may need to log in to JSTOR to access the linked references.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
https://about.jstor.org/terms
American Society for Political and Legal Philosophy is collaborating with JSTOR to
digitize, preserve and extend access to Nomos
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
5
WEALTH DEFENSE AND THE COMPLICITY
OF LIBERAL DEMOCRACY
JEFFREY A. WINTERS
Introduction
Distributions of wealth both reflect and reinforce how power is
held in societies. Whether egalitarian or stratified, wealth distributions require constant defense and enforcement. Egalitarian
orders must actively guard against wealth concentration by the
few.1 In radically unequal societies, the pressures for change are
more complex. Fortunes in the hands of the few face threats of
redistribution by the many, by the few themselves, and by the state
if one exists. In the course of human history, as different social
formations came into greater contact with each other, threats also
arose from beyond the local order.
Although social frictions are higher and more varied in stratified
societies, all status quo distributions of resources reflect a continuous interplay between threats and defenses. The tension is permanent. This is true whether the method of wealth redistribution is
direct and personal via aggression and taking, or occurs through
the seemingly voluntary transactions and extractions of impersonal
markets.2 Although not invoked to the same degree, capacities for
sanctions, coercion, force, and violence undergird the material
distributions in all communities, including those that appear tranquil, stable, cooperative, or based on trust and law.3 Property and
wealth regimes are not “a static, pre-­given entity,” Blomley (2003,
122) reminds us. They depend on continual efforts of “enactment.”
Wealth stratification reflects deep and dynamic power relations
within a polity (Bendix and Lipset 1953; Elias 1993).
158
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 158
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
159
This accent on conflict, disruption, tensions, and force is out
of step with the bulk of economic and institutionalist analyses of
political economies that focus mainly on the activities of investment, contract, and exchange, particularly within frameworks
of emerging or established markets and states. When matters of
property and enforcement are examined, the emphasis is mostly
on the predatory role of states. Notably absent is any serious theorization of wealth concentration. Instead, the horizontal or self-­
balancing character of political economies is highlighted through
extensive discussions of markets, exchange, fair competition, efficiency, cooperation, trust, credible commitments, and equilibrium. This fits well with parallel political discussions of democracy,
freedoms, equality, and rights. Indeed, decades of work in political
science have explored the affinities between markets and democracy (Dahl 1988). Regarding this glad union, Liddle (2013) writes
that “throughout modern history, democracy has only endured
in countries with capitalist market economies, never in countries
with non-­market economies,” adding that “this empirical finding
is astonishing; in the social sciences there is almost never so strong
an association between two factors.”
But no less astonishing is the far stronger and longer association between the emergence of complex human civilizations and
the permanence of extreme economic stratification. Wealth concentration in a few hands is the single most enduring economic
pattern across all polities from Mesopotamia to the present—­rarely
interrupted, and then only for brief intervals. Wealth stratification
persists across modes of production (intensive agricultural, latifundial, cottage industrial, individual-­
entrepreneurial, dirigiste,
market-­capitalist, corporate-­industrial, service-­financial, digital-­
informational)4 and across forms of the polity (kingships, sultanates, warlordisms, feudalisms, theocracies, secular states, dictatorships, single-­
party rule, and participatory democracies). The
sharply unequal contours of the wealth pyramid remain intact even
after rigidly exclusionary social structures such as nobilities and
castes are replaced by systems allowing at least some social mobility.5 Membership at the top may churn, but there is always a top.6
There is no disputing that across several centuries, freedom and
democracy have spread within countries and around the globe.
Suffrage that began as a narrow affair among rich males was pried
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 159
3/9/17 11:50 AM
160
Jeffrey A. Winters
Percent of Countries "Not Free" (Freedom House)
50%
45%
40%
35%
30%
25%
20%
15%
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
Figure 5.1. Percentage of Countries “Not Free.” Time series data are
from Freedom House and calculations by the author.
open to include nonpropertied males, women, and those excluded
by race or geography. Slavery and colonialism were attacked and
defeated. Rights of free speech and assembly have grown as well.
As figure 5.1 shows, during the last half century the percentage
of countries Freedom House labels as “not free” has decreased
significantly.7
And yet across the same centuries of rising freedom and participation, the clear trend has been toward greater wealth concentration into ever fewer hands. As the proportion of countries
that are “not free” has been pushed down below the 25 percent
level at the start of the twenty-­first century, wealth concentration
has increased significantly. Figure 5.2 reflects a general pattern
that has been in place for millennia, but which has become more
stratified over the last 300 years of democratization. On the left is
the global distribution of net wealth among adults in 2012, and
on the right is the distribution of net wealth in the United States.
The only major difference between the two pyramids is that the
United States has a smaller segment of the population with zero
wealth (50% vs. 66%). A substantial group at the bottom of both
pyramids has negative wealth.8 Updated data at the start of 2016
analyzed by Deborah Hardoon at Oxfam show that the top 1% of
the world’s population already owned 50% of all wealth. In 2010 it
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 160
3/9/17 11:50 AM
Figure 5.2(a). Comparison of Global and US Wealth Pyramids, 2012.
Net worth of global population (adults).
Figure 5.2(b). Comparison of Global and US Wealth Pyramids, 2012.
Net worth of US population (adults).
161
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 161
3/9/17 11:50 AM
162
Jeffrey A. Winters
took the wealth of 388 billionaires to equal the combined wealth
of the bottom half of the world’s population. By 2016, it took only
62 billionaires to equal the wealth of the world’s bottom half, or
roughly 3.7 billion people (Hardoon et al. 2016). Wealth concentration in the twenty-­first century is extreme and becoming more
so at an accelerating pace.
Despite all the emphasis on the horizontal in the economics
and new institutionalist literatures, it is deeply problematic that
market democracies have achieved some of the highest degrees of
wealth inequality seen in human history. Although the wealth pyramids in figures 5.2 provide a general sense of the unequal distribution of wealth globally and in the United States, they fail to illustrate how extreme wealth stratification is within the top 1%.9 To
represent the stratification within the top 1% in the United States,
we would need a spire on top of the pyramid in figures 5.2 that is
90 times the height of the pyramid shown. In 2015, the 20 richest American billionaires had a net worth equal to the entire bottom half of the US population, or about 152 million people (Collins and Hoxie 2015). Wealth is so concentrated at the top in the
United States that it skews average figures for the country sharply
upward—­more so than for any of the other 34 OECD countries. As
a result, articles and discussions using average wealth in the United
States wildly overstate how well off the middle class actually is. For
instance, the average net worth of an American adult in 2014 was
$310,000. But the median net worth, a far more accurate indicator
of what a middle-­class person really owns, was only $45,000 (Credit
Suisse 2015a).
To put inequality in democratic America in some historical
perspective, it is useful to compare it to authoritarian Rome at its
peak. On average, the 500 richest Roman senators had roughly
10,000 times the wealth of the average person in the empire, who
was typically a landless farmer or slave. The median wealth of the
richest 500 Americans ($2.6 billion in 2015) was about 58,000
times that of the median person in society. If we set aside homes
and focus only on financial resources, the top 500 in the United
States are easily more than 100,000 times richer than the median
American.10 An emphasis on concentrated wealth, stratification,
power, threats and defenses, as well as coercion and enforcement,
brings into relief the durably vertical and hierarchical character
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 162
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
163
of complex societies—­whether ancient or modern, authoritarian
or market-­democratic. That liberal democracies continue to rank
among the most materially unequal societies, despite claims and
appearances of popular empowerment, suggests fundamental
constraints on the ability of large majorities to win policies that
significantly narrow the gap between the rich and themselves.
This is not a denial of democracy, but rather a recognition of its
limits and failures spanning dozens of countries and hundreds of
years.11
Although wealth stratification is firmly established as ordinary
and durable, its maintenance is anything but automatic. Sustaining extreme material inequality requires deliberate and active
strategies of wealth defense on the part of the rich. The concept
of wealth defense is not easily separated from that of wealth accumulation. This is partly because for thousands of years, being rich
involved being armed, engaging in violence and coercion, extracting resources from broad territories, while also holding positions
of direct rule. Nevertheless, an effort is made here to focus on the
politics and power that sustain rather than create extreme material inequalities. How do the richest strata defend their fortunes
against threats of taking and redistribution, particularly those arising from overt power plays as opposed to impersonal economic
processes?
In focusing on the defense of great riches, it is important to
note that the politics and power involved in wealth defense are
very different from placing locks on, or fencing in, more modest
forms of claimed property and personal possessions. In Oligarchy,
where I first introduced the notion of wealth defense in the context of a broader analysis of oligarchs, I approached the distinction this way:
As extremely rich actors, oligarchs face particular political problems and challenges that are directly linked to the material power
resources they own or use in stratified societies. Ordinary citizens
want their personal possessions protected from theft. However, the
property obsession of oligarchs goes well beyond protecting mere
possessions. The possession of fortunes raises property concerns to
the highest priority for the rich. Moreover, oligarchs alone are able
to use wealth for wealth’s defense.12
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 163
3/9/17 11:50 AM
164
Jeffrey A. Winters
Wealth attracts far greater threats and challenges than do ordinary
possessions, and protecting it from redistribution demands an
unusually conscious and multifaceted defense.
There is also a social and political differential in the impact of
wealth inequality. Great wealth concentrates the political attention of the rich and raises their class identity far more than great
poverty does for the poor. As with any minority, the wealthy few
are more acutely aware of their small numbers than are the non-­
rich of their grand scale (Page, Bartels, and Seawright 2013). This
becomes especially significant in democracies. Although the ultra-­
rich usually occupy exclusive social spaces, they still catch glimpses
of the frustrating and dehumanizing conditions under which the
less fortunate strata live. Having an enormous fortune to worry
about also helps push other issues to the margins. For the rich,
wealth defense takes precedence over other political concerns and
dampens many of the social cleavages that divide and distract the
non-­rich.
There are two important sources of variation in the forms of
wealth defense across the centuries that are linked to organization
and violence. One, already alluded to, is the extent to which rich
actors are armed and defend their fortunes personally. When this
happens, the wealthy almost always hold positions of direct rule.
The other is whether wealth defense is carried out individually,
collectively, or impersonally through a state apparatus that guarantees property and wealth against most threats. As one moves from
individual to collective to state, the rich are increasingly disarmed
and less likely to govern directly. It is across this series of changes
that wealth as a material power resource is increasingly deployed
as cash for wealth’s defense.
The analysis presented in this chapter takes a deep historical
view of the social tensions inherent in wealth stratification, starting with what we know about the origins of wealth inequality, and
continuing with a discussion of the strategies and politics of wealth
defense as personal fortunes grew in scale and threats and predations multiplied. The second half focuses on the modern era
through an examination of the United States from the late eighteenth century to the present. The emphasis is on material stratification, the wealth threats rich Americans have faced, and how
wealth defense has been achieved—­including the emergence and
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 164
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
165
impact of the Wealth Defense Industry in the second half of the
twentieth century.
The American case illustrates how democracy was radically
restructured during the Constitutional Convention to impair the
ability of poorer majorities from using participation power and
legitimate democratic institutions to produce policies favorable to
the many at the expense of the rich few. Wealth inequality was justified by the framers as a natural outcome rooted in human “faculties.” They viewed stratification as inevitable and expected it to
grow more extreme with time. And, strangely, the rich received
special attention in their deliberations as the clearest example of
oppressed minorities vulnerable to majority tyranny. The structural protections designed into the new Constitution help explain
how extreme enrichment of American oligarchs could continue
despite major expansions of participation and voting. Even universal suffrage posed few threats to the ultra-­rich because what could
(and could not) be decided democratically and how participation
was reorganized built strong safeguards into the very structure of
democracy itself. The discussion turns first to the emergence of
wealth stratification and how wealth has been defended throughout human history.
The Origins of Material Inequality
and Wealth Defense
Why does wealth inequality arise and persist? Charles Tilly (2005,
p. 209) argues that most explanations rely on some variation of
the “sorting model.” The model starts with differences in personal
attributes among individuals—­“in energy, knowledge, skill, intelligence, strength.” Societies have a range of positions available
(such as prestige categories, specialists, offices, jobs), and unequal
rewards flow to each of these positions. A population’s sorting
mechanism somehow detects different individual faculties, and
then people get sorted into the various unequal positions. “The
model calls up a vivid scenario,” Tilly writes. “Individuals arrive at
the scanner, undergo evaluation, get shunted to an appropriate
position, then collect that position’s rewards.” Unequal rewards
flow to unequal people. In modern capitalist societies, competitive markets constitute the sorting mechanism. According to this
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 165
3/9/17 11:50 AM
166
Jeffrey A. Winters
model, wealth inequality across a social formation reflects—­and is
justified by—­prior human inequalities across individuals.13 People
are evaluated in a manner deemed to be fair because markets are
impersonal and yet grounded in individual merit.
There are several problems with this sorting model. The most
obvious is that it is incapable of theorizing the sort of structured
power and coercion needed to achieve things like racial exclusion
and gender domination. Also, actual sorting is done by people
organized into groups with varying interests and agendas, not by
objective scanners following algorithms. And sorting mechanisms
get to assess the attributes and abilities of individuals only after
these have already been augmented or suppressed by the socioeconomic position of the individuals’ families or groups. This suggests
a lot of sorting happens by some other model long before individual faculties enter the picture.
Sorting models reflecting individual human faculties also fail
to explain extreme variations in wealth stratification across societies, or within the same societies across time. If wealth inequality is
caused by differences among individuals, then societies with modest wealth concentration must consist of people who have roughly
similar personal endowments. Likewise, societies with extreme
material stratification must have populations marked by extreme
differences in individual faculties. For instance, relative to the
wealth of the median citizen in each polity, oligarchs were only
about 200 times richer in ancient Athens, and tens of thousands of
times richer in ancient Rome and the modern United States. The
40 richest oligarchs in the Philippines are 408,000 times richer
than the average Filipino. In China, the top 40 are on average
725,000 times richer than an ordinary Chinese worker.14 Basic differences in human faculties would have to vary, sometimes by a factor of hundreds and other times by many thousands, to produce
such variations in wealth concentration across these cases. Either
that, or societies would have to vary wildly in the rewards they confer on the differences across individuals—­which is an expression
of social power and politics (post-­sorting), not of individual talents
or attributes.
The biggest problem with the “individual human faculties” theory is that it ignores the actual history of when and how
stratification arose and increased. Humans possessing different
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 166
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
167
faculties have been around for at least 100,000 years. And yet,
the earliest known forms of social inequality did not begin to
appear until roughly 10,000 years ago with the sedentary domestication of plants. In their 2012 study, The Creation of Inequality:
How Our Prehistoric Ancestors Set the Stage for Monarchy, Slavery, and
Empire, Kent Flannery and Joyce Marcus note that rank inequality in achievement-­based village societies appeared about 9,000
years ago, while hereditary inequality arose a little over 7,000
years ago. And it was only with hereditary stratification (a group
rather than an individual variable) that the first signs of modest
wealth inequality began to appear.15 It took another 1,500 years for
extreme wealth stratification to become firmly established. “The
first monarchies or oligarchic states in Mesopotamia arose between
5,500 and 5,000 years ago,” write Flannery and Marcus (2012, p.
562), which was “some 4,000 to 3,500 years after the first villages.”
Thus, thousands of years elapsed before the first forms of rank and
hereditary inequality solidified into significant wealth inequality.
Once new opportunities for wealth accumulation (sedentary farming) were combined with effective means of wealth defense (clans,
lineages, and especially intra-­group coercion), material stratification has marked nearly all human communities ever since.
Abundance and Wealth
Notions of abundance originate in the natural realm. But wealth
proper arises with the first successful claims to exclusive—­and then
concentrated—­control over scarce resources desired by others.16
Anthropologists and especially socio-­
biologists note that efforts
at such control are not limited to humans. Social animals exhibit
“micro-­
level stratification” in their direct interactions involving
dominance and control, particularly over food and mates. But
humans living in non-­foraging societies “are unique in the formation of macro-­level stratification networks,” with the control over
wealth consistently becoming paramount once scarce material
resources could be claimed and defended unequally.17
Claiming resources unequally and defending those claims
requires organized, social processes of exclusion and domination.
Tilly (2005, p. 210; 1998) argues that “exploitation and opportunity hoarding produce the bulk of the world’s material inequality.”
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 167
3/9/17 11:50 AM
168
Jeffrey A. Winters
Whether appropriated from nature or produced from labor, economic surpluses do not lead to wealth stratification until a part of
the community can reliably withhold resources from the rest as
they champion ideas justifying wealth stratification that displace
existing egalitarian norms and mechanisms supporting them.
Wealth defense originates in making and sustaining these exclusive claims—­always first by groups, and only much later by individuals as private wealth. Indeed, it is the creation of modern and
impersonal institutions of private property and enforcement that
completed the long transition from group wealth to individual
fortunes. Flannery and Marcus (2012) emphasize that the emergence of inequality was orchestrated and resisted. “[A]gricultural
villagers do not surrender their equality without a fight. No sooner
does one social segment achieve elite status than its privilege is
challenged, forcing it to resume its quest for supremacy. Cycling
between ranked and unranked was probably common in the pre-­
industrial world” (p. 208).18
The evidence suggests that sedentary agriculture was probably
a necessary condition for the emergence of certain kinds of social
inequality. But the absence of significant wealth stratification in village life across several millennia also suggests that ending nomadism, fixing people to narrower territories, and unlocking larger
economic surpluses was not sufficient to cause a rich stratum to
emerge.19 It took generations of experimenting with social structures of domination and material exclusion to discover which ones
worked and could be defended. There were two key and often
intersecting social pathways to early wealth stratification: the temple and the lineage group. Convincing followers that there were
human inequalities based on one’s links to deities and a spiritual
world was fairly easy, and from Sumer forward, temple managers
(usually a family enterprise) held great wealth in land and agricultural labor.
The greater challenge for wealth stratification was constructing capacities for domination by the family, clan, or lineage. This
required promoting an ideology that inequality was not at all
individual, but rather hereditary (Flannery and Marcus 2012, p.
563). The emphasis was not so much on a “chosen one” but rather
on a “chosen group.” Hereditary dominance, linked initially to
the cosmos and ancestor veneration, provided the crucial social
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 168
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
169
instrument for transgenerational privilege and exclusion not
seen in other social animals. This, in turn, set the stage for the
rise of durable institutions and structures needed to sustain wealth
stratification.
Violence, Coercion, and Territoriality
Appeals to gods and ancestors may have helped launch the process of lineage-­based wealth differentiation. But for truly extreme
material stratification to emerge and endure, wealth defense
increasingly relied on the organization of violence, coercion, and
territoriality. At one extreme were the Chippewa of North America, a community of more than 20,000 at the time of their collision
with arriving Europeans. Despite being connected by a common
system of beliefs, culture, and language, they were spread across a
wide territory and had no central political organization. The Chippewa were rank-­ordered but materially egalitarian (Sack 1986).
What was missing for wealth inequality to be sustainable?
Patricia Urban (2002, p. 131) underscores the importance of
boundedness—­the power of an emergent elite to impose territorial and transactional constraints on subordinates—­
controlling
who they could interact with, what goods passed to or among
them, and through whom goods and resources flowed. Around
1200 bce in the Naco Valley in present-­day Honduras, aggrandizing groups and emergent elites attempted to build their wealth
and power. But they could not monopolize crucial economic processes, nor could they “lay exclusive claim to the loyalty and labor
of a particular group of supporters while simultaneously denying
competitors access to this power base” (p. 133). Leaders had feeble wealth defense capacities and the polities they created were
small and ephemeral.
More successful were the middle-­range societies of the Central Mississippi Valley around ad 1300, which were led by stronger chiefs capable of deploying violence over broad areas, but
who could not yet define and defend bounded territories. Their
method of wealth defense relied not on the establishment of a
strong political center that extracted from a hinterland, but rather
on a geographically roving “mobilization of surplus resources and
labor as tribute and the use or threat of coercive force” (Rees
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 169
3/9/17 11:50 AM
170
Jeffrey A. Winters
1997, p. 114). Armed actors and their entourages were in constant
motion across a particular area. This typically involved a combination of violence, negotiation, and exchange over a territory whose
borders were constantly contested and shifting among competing
chiefs who posed horizontal threats to claimed wealth and assets.
What was needed to amass and defend riches on a grander scale
was an innovation in the use of war that allowed territory and people to be more tightly controlled and exploited. Of course, warfare is as old as the first human bands and tribes. But for most
of this history, it was not directed at territorial domination of the
sort that leads to exclusive claims to resources and land property.
Over a long period marked by small gains and innovations, paramount chiefs arose from dominant clans and lineages. “Chiefly
societies converted war to a strategy of territorial expansion,” Flannery and Marcus argue (2012, p. 210). “Tired of negotiating for
the products of a neighboring region, chiefs might just subjugate
the region and demand its products as tribute.” Greater military
prowess was vital for establishing territorial boundaries, dominating but also defending a population, and laying a foundation for
the stable defense of rising centralized fortunes.20
Wealth Defense, Protection Rackets, and Modern States
The ever tightening intersection of violence, territory, and people
is simultaneously the source of property, concentrated wealth,
complex states, and expansive empires. To bring the story forward to the modern era, the analytical challenge is to trace how
changes in the form and organization of force converted the violence unleashed by aggrandizing groups into its softer cousin,
coercion, which allowed legal principles and institutions enjoying
considerable authority and legitimacy to predominate. It was this
revolutionary transition that, for the first time in history, permitted
the holders of great fortunes to be securely defended and yet be
personally unarmed. The question is, how do we get from the paramount chief and lineage, to the medieval lord, to the colonial company, and finally to the impersonal modern state, which functions
to create secure economic spaces that reliably defend wealth in all
its dimensions: the enforcement of property rights, contracts, long-­
distance and impersonal investment and exchange, accumulation,
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 170
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
171
use, and transfer? And once these changes occur, what remains of
wealth defense by the ultra-­rich in the modern era?
The pioneering work of Frederic Lane (1950; 1958; 1966) and
the later elaborations of his insights by Vadim Volkov (2000; 2002)
are particularly helpful for understanding these transformations.
There were several important steps. Wealth in the form of extracting tribute had to be converted from plunder to extortion to
taxation. Equally important was the transformation of force from
naked violence into legitimate coercion—­something that could
happen only if the enforcement function at the heart of property
defense moved out of the hands of wealth holders themselves.
This facilitated an important ideological shift away from viewing the rich and the rulers as the same thing or the same people. The partly separate, partly overlapping realms of the political
and the economic were thus in formation. In the civil oligarchies
that resulted, wealth defense was a very different enterprise for a
property-­secure stratum of rich actors recast in the modern role of
“investors,” “entrepreneurs,” and “job creators” upon whose satisfaction and vitality everyone else depended.
The starting point in sorting out these transformations is the
important distinction between the extraction of resources through
raids versus through providing protection. Both involve the use
of threats and force by dominant actors focused on wealth. But
“unlike the nomadic predators who, in the past, raided the neighboring settlements to collect tribute but never constructively interfered with the local order of life,” Volkov (2000, p. 724) writes,
“conquerors who established permanent rule had to protect their
dominion and increase economic returns from it to enhance protective capacity.” Part of being able to create bounded spaces and
territorial definition involved the decidedly interventionist project
of protection rackets pursued by nobles and aristocrats—­“wielders
of force”21—­who constitute a warrior community:
To dominate also means to define, to lay boundaries around others’ activity, to create rules for followers in other words, a kind of
coercive but creative activity. The mission of the warrior community,
then, is to organize the subjected population by imposing rules and
to discipline individuals by shaping their affects; these are the practices that give rise to institutional structures.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 171
3/9/17 11:50 AM
172
Jeffrey A. Winters
For these rising oligarchs, the key to building institutional structures and legitimacy was to establish a virtuous cycle of deploying
coercive-­protective capacities, increasing economic returns, and
defending wealth. But not all powerful groups and actors were
paddling the boat in the same direction. A constant danger and
source of disorder and breakdown was that armed oligarchs frequently turned on each other. As Bates, Greif, and Singh (2002, p.
603) remind us, “when private parties provide their own defenses,
wealth and violence go hand in hand.” Depending on a range of
factors, direct rule by rich actors who are armed is sometimes fragmented and atomistic, and sometimes collective. Stable collective
rule by oligarchs requires that they be at least partially disarmed
when in close proximity, such as when gathered in the capital or a
senate chamber.22
An important advance toward early-­
modern state formation
occurs when the use of force for the extraction of wealth shifts
from extortion to protection (Tilly 1985). An extortion racket
extracts resources by being both the source of a threat and, for
payment, the supplier of security from it. A protection racket
involves a subtle transformation toward a more institutionalized,
legitimate, and wealth-­
enhancing arrangement. “The moment
of establishing authority over a certain populated territory and
of concomitant tributary relations is also the moment when the
threat of violence changes direction from inward to outward, and
thus acquires the features of protection,” Volkov (2000, p. 725)
argues. “Yet, the threat remains there and is directed outward only
as long as respect and tribute are paid to the superior power.”
Much later, and in a more elegant form, this tribute comes to be
known as taxation.23 But for a period of many centuries in Europe,
the line between rich and powerful racketeers offering extortion
and protection was blurred. Lane focuses on the “violence-­using
and violence-­controlling enterprises of Europe during the millennium between ad 700 and 1700.”
Which princes were rendering the service of police? Which were
racketeers or even plunderers? A plunderer could become in effect
the chief of police as soon as he regularized his “take,” adapted it to
the capacity to pay, defended his preserve against other plunderers,
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 172
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
173
and maintained his territorial monopoly long enough for custom to
make it legitimate. (Lane 1958, p. 403)
Legitimacy, custom, and authority are important for building
stable and scaled-­up systems of wealth defense that rely more on
coercion than violence. Even if tremendous military force is indispensable in establishing bounded political units and amassing
wealth, the constant use of violence is expensive, risky, and usually
unpleasant for everyone involved.24
A core element of ideological strength is the capacity to define
what is right and wrong for a community, particularly regarding
the use of force. Constructing and imposing a frame of legitimacy
reflects prior struggles for authority. “It is the position of authority itself that gives one the right to impose definitions, including
those prescribing the way in which the use of force should be seen”
(Volkov 2000, p. 717). The modern state—­which is possible only
if there is a separation between wealth holders and their capacity
to engage in or hire violence for wealth defense—­gains much of
its legitimacy from the successful replacement of violence done by
individuals with rule-­bound coercion done by institutions. On the
distinction between violence and coercion, Volkov observes:
Coercion is the use of force as a threat in order to make someone
behave in a certain manner; it has degrees of subtlety. Violence is
an expenditure of force to an immediate, visible, and destructive
effect. Coercion, in contrast, relies on potential rather than actual
violence, on the threat or promise thereof, and is intended to affect
someone’s future behavior rather than physical integrity. Coercion
allows force to be saved while violence requires its expenditure.
(2000, p. 717)
Coercion can supplant violence only after the lessons of the latter
have been absorbed and understood. “Violence has to be employed
at least once if coercion is to be effective,” Volkov adds. “Coercion
always implies violence but as memory or potentiality.” Thus the
art of coercion involves an economy of force. “Coercion is violence
deferred. It is removed but only temporarily, as long as the subject
of coercion displays behavior conforming to the pattern set by the
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 173
3/9/17 11:50 AM
174
Jeffrey A. Winters
wielder of force” (2000, p. 718).25 No display of conforming behavior is more important to modern wealth defense than a respect for
property, which during the rise of absolutist states fully metamorphosed from self-­enforced claims to state-­enforced rights.
Lane’s (1950) treatment of donatários in Brazil provides insights
into the penultimate step in that metamorphosis—­the mixed Portuguese “enterprise” for colonial conquest and wealth defense.
It was the classic problem of having sufficient force for property
and wealth defense, but now embedded in a territorially extended
and increasingly competitive global space for traders and emerging states. The donatários were a hybrid combining ancient security
functions with modern productive and market activities. “I think it
may be accepted as a general proposition,” Lane states, “that every
economic enterprise needs protection against the destruction or
seizure of its capital and the disruption of its labor force” (p. 27).
The entities established in colonial Brazil were one solution to
the inevitable protection problem that arose as Europe pushed its
frontiers to their global limits.
The donatários consisted of 12 colonial proprietors in Brazil established by Royal decree in Lisbon. Each proprietor was
“expected to fulfill the political function of keeping out the
French,” Lane writes (p. 23). “They had civil and criminal jurisdiction within their captaincies, the right to levy taxes, and the
right to collect tithes from land granted to settlers.” They also conducted “what might be called the business enterprise of establishing sugar plantations.” The model proved so effective that Brazilian sugar plantations became the chief suppliers to all of Europe.
“The first successful sugar plantations of Brazil,” Lane notes, “were
developed by those proprietors who were able to solve at the same
time the political and economic problems of bringing land, labor,
and capital together in a profitable way” (p. 23).
The fundamental wealth defense problem was not the predations of the French. Rather, it was suppressing the violent reaction
of the indigenous population to an extractive incursion by the
Europeans. The enterprises that could forcefully subjugate the
locals and control the labor needed to produce sugar constituted
a successful instance of wealth defense. Lane cites the example of
Martim Affonso da Sousa, who in the early 1530s was granted the
donatária of São Vicente in the present state of São Paulo. “The
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 174
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
175
main solution of the labor problem in the colony of São Vicente
was the use of Indian slave labor,” Lane explains (p. 24). To overcome this business problem, Affonso “allied with friendly Indians
to wage war and secure slaves from other tribes, and hired enough
soldiers to keep the upper hand.”
The donatária of Duarte Coelho, another successful “force-­
using, profit-­seeking” colonial entrepreneur, was at Pernambuco.
Part of his ordinary business expenses included preparing land
for cane fields, bringing in supplies, and building sugar mills. He
also had to invest in creating an orderly community for a growing number of settlers. But the truly make-­or-­break problem his
enterprise faced was building military capacities sufficient to convert wealth-­threatening locals into wealth-­producing labor—­once
again, slaves. “It was essential to be able to resist Indian attacks,”
Lane writes. “Those enterprises that could not failed.” Of all the
expenses Coehlo faced, “the hiring of soldiers was one of vital
importance to the success of the enterprise” (Lane 1950, p. 25).
Put another way, these enterprises had to do what firms do and
what modern states do.
As in Europe, these hybrid enterprises scattered around the
globe eventually became private businesses that relied on states
for the provision of coercion and governance. These dynamics,
carried out over centuries through a series of contests and conquests, increased the scale and institutional complexity of political units and increased the fortunes that could be defended by
and for wealthy players. The eventual monopoly of force over a
bounded territory and population, and the subtraction of direct
violence from the wealth defense toolkit of the rich, was a boon to
oligarchs. They no longer had to make major personal or business
expenditures on armaments, castles, moats, militia, and costly alliances and marriages.26 Coercion and violence would always constitute the firmament of all property and wealth. But the rise of the
bureaucratic tax state opened new opportunities for off-­loading
the wealth defense costs of property protection and enforcement
to strata further down the wealth ladder. The new challenge was to
accomplish this oligarchic goal in the context of increasingly democratic polities, which incorporated certain institutions and practices reflecting earlier oligarchic victories, but also posed novel
threats in the form of participation power.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 175
3/9/17 11:50 AM
176
Jeffrey A. Winters
Having traced the rise of material stratification and the evolution
of the modern institutional state as the predominant and increasingly impersonal guarantor of property and wealth, the focus now
turns to novel challenges to the rich posed by the transition from
states dominated exclusively by the rich themselves to democratic
governments that gave small and equal increments of power to vast
numbers of people, most of whom had very little property or wealth.
The case of the United States from the late 1700s to the early 2010s
offers important insights into the delicate interplay between formal
political equality and extreme material stratification.
Wealth Defense in America
Aristotle took wealth stratification as a given, but he recognized that
it created deep social tensions. In The Politics, he grappled with the
problem of material and political clashes between the many poor
and few rich. If the rich squeezed the poor too far, they would rise
up. If the poor threatened oligarchic fortunes, the rich would fight
back violently. “The regulation of property is the chief point of all,”
Aristotle writes, “the question upon which all revolutions turn” (II
vi 1266a 37–­9).27 The problem is simplified in an authoritarian system that excludes the many from both wealth and politics. Indeed,
in Aristotle’s time, the rich were still heavily armed and tended to
rule directly. But democracy poses a unique challenge. If oligarchs
have laid down their arms in exchange for an armed state bound by
the rule of law that provides a secure space for property and riches,
what happens if the non-­rich use the legitimate democratic state to
threaten wealth? The inherent contradiction of modern capitalist
democracy is that it juxtaposes historically radical principles of political equality with extreme wealth inequality. Dispersed participation
power and concentrated wealth power are incompatible on equality
grounds, and yet have coexisted in every democracy from the eighteenth century to the present.
Stratified Democracy
The core problem Aristotle explored in The Politics was how to
combine participation power with wealth power so that both
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 176
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
177
could survive in the same stable political system. What was
needed was a political structure that was democratic and yet
would not (and ideally could not) threaten the rich. His solution was a constitutional government that fused democracy and
oligarchy in a way that kept everyone slightly mystified—­“there
should appear to be both elements and yet neither,” Aristotle argues (IV ix 1294b 35–­6). The only way to achieve wealth
defense for the few despite participation by the many was to
build safeguards into the architecture of democracy itself. Stratified democracy must promise the equality of everything—­except
wealth. Its popular legitimacy would derive from highly visible
political victories based on democratic participation, while its
material inequality would be guaranteed by less obvious mechanisms that subvert the structures, processes, and policies potentially threatening the rich.
Montesquieu echoed Aristotle in 1748 when he defined a just
democracy as one whose legislature protects the rich against the
poor by allowing the rich to “form a body that has a right to check
the licentiousness of the people.”28 Such a wealth-­defense body
was lacking in the United States during the six-­year Confederation Period spanning the British defeat at Yorktown in 1781 and
the start of the Federal Convention in Philadelphia in 1787. As a
result, democracy under the Articles of Confederation was free to
hyper-­perform in many of the 13 states, posing significant threats
to America’s richest strata.29 The wealth defense crisis that erupted
during the Confederation Period played a key role in provoking
a radical institutional redesign of the United States with changes
that made it much harder for participation power to pose such
direct threats to the rich. This section traces the politics of wealth
defense in America from the 1780s to the present. The history of
the country reflects a fundamental tension between democracy
and oligarchy in which the rich have repeatedly defended their
fortunes against threats from a population determined to improve
opportunities and standards of living for the many through the
use of democratic power and institutions. The context in which
this struggle has unfolded over the centuries has changed in ways
that dramatically enhanced wealth power over participation power
by the late twentieth century.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 177
3/9/17 11:50 AM
178
Jeffrey A. Winters
Too Much Democracy, Too Little Wealth Defense
Democracy must first be impaired before it can coexist with
extreme wealth stratification. If not, the attempted fusion of political equality and material inequality is unworkable. Responding
to clear wealth-­defense failures, the Framers of the US Constitution arrived at an elegant formula for achieving wealth defense
for the richest Americans.30 The interests of the wealthiest Americans would be lumped together with all other vulnerable minorities whose individual rights deserved protection against potentially tyrannical majorities. This would be accomplished initially
by addressing a range of ominous democratic malfunctions that
arose during the Confederation Period, and later through a
strong, property-­favoring judiciary that could use the Bill of Rights
to recast wealth defense as a civil right of the rich, ultimately safeguarding their deployment of massive wealth power as a form
of “speech” throughout the democratic process. The result was
exquisitely Aristotelian: The US government evolved to be both
oligarchic and democratic, and yet neither.31
The independent country began as an amalgam of semi-­
sovereign states united by what amounted to a weak executive
committee. Democracy was a hard-­won local affair. Strong sentiments of individual liberty and equality had been whipped up in
the mobilization against the British crown. Having just broken
free from external dictatorship, few leaders in the states were in
the mood for strong domination from above. Had the post-­War
period been one of economic prosperity, the current US Constitution may not have been written at all—­certainly not as early and
as urgently as 1787. But the United States was gripped by a deep
and painful economic crisis in the years immediately following the
war. A recession combined with deflation plunged ordinary farmers, who had sacrificed mightily during the revolution, into severe
tax and mortgage debt.
This convergence of factors set the stage for a dangerous clash
between participation power and wealth power in America. There
were no sophisticated institutions of “financial intermediation”
such as banks or stock exchanges to mask the looming class conflicts between creditors and debtors. The richest Americans had
personally purchased (or repurchased) government bonds that
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 178
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
179
funded the war and also held the mortgages on farms across the
states. Unless forgiven, both forms of debt would have to be repaid
with interest by struggling small farmers. Enormous sums of oligarchic money were tied up in these binding, legal contracts, and
their owners fully expected to be paid. State-­enforced taxation was
the wealth defense mechanism for making sure the public debts
would be covered in an orderly fashion, and bond holders who
dominated the legislatures repeatedly raised taxes on the population to fund the payments they themselves would ultimately receive
(Larson and Winship 2005). To recover mortgage debt, the creditors also turned to the coercive capacities of the civil state as courts
and sheriffs seized the livestock and tools of farmers. If necessary,
the farms themselves were taken in foreclosure. By the thousands,
poor Americans were thrown into debtors’ prisons to impose punishment and shame. Entire families lost their land to creditors.
If all of this had been unfolding under an authoritarian regime,
the story might have ended with the rich getting made whole and
ordinary citizens suffering the pain of it. But the states were participatory democracies and the indebted many had vastly more
votes than the creditor few. To complicate matters, the firm grip
on politics long held by wealthy colonial gentlemen had loosened
in the years after the war. In many states, “a new breed of politicians, often from lower social backgrounds” began to win seats
in the various legislatures (Larson and Winship 2005). Wealth
defense would be impossible under such extreme economic conditions if these powerful bodies were captured by the electorate
and began to respond to their desperate pleas for fairness and
relief. If the people were not stopped, the new nation threatened
to devolve into an insecure economic space for those holding the
most property.
Fixing various problems with the Confederation had been on
the minds of political leaders for some time. And a series of poorly
attended gatherings of state representatives had been arranged to
discuss needed reforms.32 But the trigger for the radical restructuring of the US government undertaken in Philadelphia that began
in the summer of 1787—­the drafting of a new constitution rather
than the amending of the old—­was the looming wealth defense
crisis that had been gaining in urgency during the previous three
years. The crisis had two faces, each menacing in its own way to the
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 179
3/9/17 11:50 AM
180
Jeffrey A. Winters
rich. One face, represented in the extreme by Rhode Island, was
the money printers.33 These state legislatures solved the debt problem in favor of the poor by printing paper money that was worth
far less than the gold and silver creditors had loaned and were
demanding in repayment. This amounted to using democratic
power to shift heavy economic burdens from the many debtors to
the few creditors.
The other face was that of the hard currency states represented
most brutally by Massachusetts.34 These legislatures refused to
print money and insisted on enforcing contracts, foreclosing on
farms, and filling the prisons with debt scofflaws. They did this in
a manner that was procedurally democratic and yet profoundly
unresponsive to a desperate majority. To the horror of the rich,
indebted farmers responded by taking up arms and attacking the
state apparatus they saw as doing the bidding of the wealthy.35 In
an effort to force the rich to listen, they formed people’s militia,
trained for battle, forcibly shut down courthouses, and prepared
for an expanded confrontation by attempting to capture the largest stockpile of US armaments. Wealth defense in America was
imperiled by both of these developments, and nothing short of
restructuring the entire constitutional edifice would save the oligarchic side from its democratic partner.
A Rage for Paper Money, an Equal Division of Property, and Other
Wicked Projects
James Madison played a key role in gathering leaders together in
Philadelphia. In preparation for the Federal Convention, he conducted an intensive historical study of confederacies and unions
to determine what structures ensured their success and failure. He
also prepared a private memorandum entitled “Vices of the Political System of the United States” that summarized the debilitating
problems the country faced. Most Madisonian scholars concur
that the overarching theme of this document is not about flaws
in the Articles of Confederation themselves, but rather “problems
within the states, including the multiplicity and mutability but
especially the injustices of state laws” (Gibson 2012, p. 186). There
was an urgent need to constrain what democracy was becoming in
the states.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 180
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
181
Violations of the rights of minorities and individuals within the
small sphere of the states resulting from the abrogation of contracts, paper money legislation, and other schemes of debtor relief,
Madison observed several times in 1787–­88, “contributed more to
that uneasiness which produced the Convention, and prepared the
public mind for a general reform, than those which accrued to our
national character and interest from the inadequacy of the Confederation to its immediate objects.” (Gibson 2012, p. 186, quoting
Madison’s “Vices”)
Madison was so agitated about how property rights—­the foundation of wealth defense—­were eroding at the state level that
his reforms included a proposal that the new federal government should have the power of universal veto over any state
law. Although much of his redesign of the United States was
adopted, this extreme measure alarmed enough delegates that it
did not pass.36
Of the seven states that printed money in the mid-­1780s, none
went further than Rhode Island in redistributing wealth from the
rich to the poor. The issue of paper money was hardly a matter of
abstract fiscal policy. In Pennsylvania and Rhode Island, some of
the first political parties in the country arose around this struggle.
Supported by a majority of indebted farmers, the “Country Party”
captured the legislature in Rhode Island in 1786 and immediately
printed paper money. As this currency plummeted from parity
with gold and silver to around 17 percent of their value, and as
creditors and merchants refused to accept the paper, a cascade of
other laws followed. The legislature passed a “tender law” declaring that the paper money had to be accepted as legal payment. It
also passed “stay laws” that suspended contracts and halted foreclosures and other court proceedings against debtors. Creditors
and merchants responded by hiding, running away, and closing
their shops to avoid being repaid on such unfavorable terms. The
Rhode Island legislature passed yet more legislation allowing debtors to use their inflated currency to pay creditors at designated
courts, then publish a notice of payment, and thereby be legally
debt-­free. Creditors could come to the courts to retrieve their payments. Most did not bother. The conflict escalated when the legislature passed “bills of attainder” finding some wealthy individuals
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 181
3/9/17 11:50 AM
182
Jeffrey A. Winters
and judges guilty of crimes without access to due process in the
courts.
None of these actions in Rhode Island and elsewhere transformed modest farmers into fat cats. No new money flowed into
their hands. They were simply relieved of their ruinous debts and
allowed to return in peace to planting and harvesting. It was the
rich who were being given a massive financial haircut as obligations on their books were erased by fiat or settled with devalued
paper. The write-­offs were real and the precedent was shocking.
In each of the largest states, the problem of farmer debt increased
steadily as one moved westward away from the urban communities along the Eastern Seaboard, where roughly 10% of the population lived. The fight over unpaid debt, taxes, and paper money
threatened to unite a dangerous north-­south axis that was forming in the western and rural parts of many states where the great
majority resided. “Vermont had threatened an alliance with Canada,” Schweitzer writes, “and both might have allied with western
Massachusetts; the western counties of Pennsylvania, Virginia, and
North Carolina had each at some point threatened secession over
the issue of paper money and taxes” (1989, p. 320). The consensus
view among the 55 representatives assembled in Philadelphia was
that the country’s future was in doubt if these crimes perpetrated
in the name of democracy were not merely stopped, but blocked
from ever happening again.37
The violent events in Massachusetts represented the obverse of
what was happening in the paper-­money states. In the view of the
rural majority in Massachusetts, the problem with democracy was
that it was callous and unresponsive. The lion’s share of new taxes
being levied by legislatures was to pay interest to urban creditors,
many of them speculators, who had bought up mountains of war
debt on the cheap. Holton explains the sweet deal the creditors
had crafted.
In disbursing interest every year, the federal and state governments multiplied the interest rate times the face value of the [war]
bonds, not the amount the present holders had paid for them, so a
speculator who obtained a bond paying 6 percent annual interest
for one-­fifth of its face value earned 30 percent on his investment
every year—­a windfall that was denounced [by indebted farmers]
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 182
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
183
as “excessive usury.” Many taxpayers, perhaps a majority, resented
the sacrifices they were compelled to endure on behalf of bond
speculators.38
Indebted farmers in Massachusetts attempted, but failed, to capture the legislature and pass relief measures that would shift the
financial costs to the rich.39 The state’s hardline stance may have
been justified from a wealth defense perspective. But it prompted
a violent response by frustrated citizens who were determined to
defend what few crumbs they had.
It is noteworthy that leaders of the rebellion like Daniel Shays,
Job Shattuck, and Luke Day (all having served as military officers)
targeted no human enemies, not even the rich. Individuals and
their homes were not attacked, nor were prosperous neighborhoods invaded. They focused their violence on the instruments
of state enforcement: courthouses that were lowering the gavel
against them and jails that were holding their friends and family
for the crime of unpaid debts. “If you Dont lower the taxes we’ll
pull down the town house about you ears,” one insurgent wrote to
the governor. “We country men will not be imposed on. We fought
of our Liberty as well as you did” (quoted in Burns and Dunn
2004, p. 32). The rebels did not show up shooting. They marched
on state buildings usually playing the fife and drum. Often an initial armed force of 500 would swell by another thousand once a
position was established on the court steps and supporters joined
spontaneously. Judges trying to enter the courthouse for their
quarterly session would be blocked and turned away, but not otherwise harmed.
Matters escalated when Governor Bowdoin sent state troops
to confront the people’s militia. In the fall of 1786, as the armed
farmers grew in number and boldness, the Massachusetts legislature passed three pieces of legislation that significantly expanded
the use of state violence. The Riot Act made it illegal for more
than 12 armed people to gather. The Act authorized law enforcement personnel to kill those who refused to disband and disburse
upon being read the riot act. The Militia Act subjected soldiers
involved in rebellious activities to court martial. And the legislature suspended the Writ of Habeas Corpus, which allowed sheriffs to arrest and detain citizens indefinitely without due process
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 183
3/9/17 11:50 AM
184
Jeffrey A. Winters
of law. In response to this escalation, the leaders of the rebellion
prepared to capture the Springfield Armory, which was the main
manufacturer of firearms in the United States.
Word of the uprising spread quickly to the other states.
Although reports varied regarding the seriousness of the threat,
national leaders showed evidence of genuine alarm. The reaction
of George Washington, in retirement at Mount Vernon, captured
the sense of concern. In an October 1786 letter to David Humphreys, Washington wrote:
But for God’s sake tell me what is the cause of all these commotions [in Massachusetts]: do they proceed from licentiousness . . .
or real grievances which admit of redress? If the latter, why were
they delayed ’till the public mind had become so much agitated?
[ . . . ] Commotions of this sort, like snow-­balls, gather strength as
they roll, if there is no opposition in the way to divide and crumble
them. Do write me fully, I beseech you, on these matters; not only
with respect to facts, but as to opinions of their tendency and issue.
I am mortified beyond expression.40
The rebels failed in their effort to capture the Springfield arsenal. And during the winter months of 1786, Shays’ Rebellion and
numerous other smaller militia actions were suppressed with an
overwhelming show of military force and a minimum of bloodshed. Washington had not planned to join the delegates in Philadelphia. But in the wake of the chronic problems in the paper-­
money states and the shock of the agitations in Massachusetts and
elsewhere, he decided to attend the convention and chair it.41
The Rich As an Oppressed Minority
Notes from the debates of the convention delegates demonstrate a
keen awareness of the gap between the rich and poor in America,
and a determination to restructure the country’s democracy so
that poor majorities could not threaten the wealth of rich minorities. Edmund Randolph, the governor of Virginia, opened the
convention by reminding the delegates of “the perils with which
we are surrounded,” and asking, “Are we not on the eve of war?”
The perils the country faced were the democratic policies citizens
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 184
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
185
were pursuing. “Our chief danger arises from the democratic parts
of our [state] constitutions,” Randolph said. “It is a maxim which I
hold incontrovertible, that the powers of government exercised by
the people swallows [sic] up the other branches. None of the constitutions have provided sufficient checks against the democracy.”42
Lamenting that there were no protections for the rich under the
Articles of Confederation, Oliver Ellsworth of Connecticut, a lawyer who lived from investments and lending, asked his fellow delegates, “Wt. is Wealth when put in Competition with Freedom?”43
Madison was more specific than his fellow delegates about how
democracy at the state level was hurting American oligarchs. “The
rights of individuals are infringed by many of the State laws—­such
as issuing paper money, and instituting a mode to discharge debts
differing from the form of the contract,” he said. Hinting also at
the problem of violence and rebellion, Madison added: “Right
and force, in a system like this, are synonymous terms. When
force is employed to support the system, and men obtain military
habits, is there no danger they may turn their arms against their
employers?”44
Madison recognized that a dangerous clash was under way
between democracy and oligarchy. But he also believed democracy
could be adjusted so that majoritarian politics and wealth stratification could both be preserved. Madison reminded the convention
that people fall into different classes, and that majorities “might
under sudden impulses be tempted to commit injustice on the
minority.”45 In addition to conflicts arising between debtors and
creditors, he focused special attention on the basic problem of
unequal wealth. “There will be particularly the distinction of rich
& poor,” he warned. Although Madison knew that wealth inequality in America was not yet as extreme as in Europe, he was convinced it would become much worse with time. Given that signs
of a “leveling spirit” had “sufficiently appeared in a certain quarters” in the form of debt relief, Madison argued that the delegates
needed to anticipate the “future dangers” of democracy and build
safeguards against them into the new constitution. His obsession
with wealth defense merits full quotation:
In framing a system which we wish to last for ages, we shd. not
lose sight of the changes which ages will produce. An increase of
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 185
3/9/17 11:50 AM
186
Jeffrey A. Winters
population will of necessity increase the proportion of those who
will labour under all the hardships of life, & secretly sigh for a more
equal distribution of its blessings. These may in time outnumber
those who are placed above the feelings of indigence. According
to the equal laws of suffrage, the power will slide into the hands
of the former. No agrarian attempts have yet been made in this
Country, but symtoms, of a leveling spirit, as we have understood,
have sufficiently appeared in a certain quarters to give notice of the
future danger. How is this danger to be guarded agst. on republican
principles?
Hamilton agreed with Madison that the gap between the rich and
the poor was the most daunting challenge they faced as architects
restructuring American democracy. Arguing that wealth stratification was the inevitable product of liberty, Hamilton declared:
It was certainly true: that nothing like an equality of property
existed: that an inequality would exist as long as liberty existed, and
that it would unavoidably result from that very liberty itself. This
inequality of property constituted the great & fundamental distinction in Society. (Madison 1787, notes from June 26)
Madison’s solution was to create a much smaller senate made up
of wealthy landholders who should be allowed to remain in office
as long as possible “to secure the permanent interests of the country against innovation.” He continued:
Landholders ought to have a share in the government, to support
these invaluable interests, and to balance and check the other. They
ought to be so constituted as to protect the minority of the opulent
against the majority. The senate, therefore, ought to be this body;
and to answer these purposes, they ought to have permanency
and stability. Various have been the propositions; but my opinion
is, the longer they continue in office, the better will these views be
answered.46
Not all of the wealth defense proposals floated at the convention
were adopted. But enough were approved to render American
democracy far less threatening to the rich.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 186
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
187
The new Constitution created a much stronger federal government with less democracy below and a tighter concentration of
power at the top—­including an upper Senate that could constrain
the people’s House, a judiciary of just nine persons that would play
a particularly important role in property and wealth defense, and
a single executive president. Written in language intended to leave
most powers to the states, the document nevertheless included an
explicit statement of things states could not do, all of which are a
direct reflection of the wealth defense scare that motivated many
at the Convention. Article I, Section 8 gave Congress the power
to establish “uniform laws on the subject of bankruptcies throughout the United States.” This removed from the states the ability to
intervene in this sensitive zone of contestation between creditors
and debtors. Article I, Section 10 contained a laundry list of prohibitions on states that concisely summarized every injustice that
American democracy in the 1780s had perpetrated on the rich.
No state shall “. . . coin money; emit bills of credit; make any thing
but gold and silver coin a tender in payment of debts; pass any bill
of attainder, ex post facto law, or law impairing the obligation of
contracts.” The last two states to ratify the Constitution were the
staunchest paper-­
money states—­
North Carolina resisted for 23
months after the first state signed, and Rhode Island held out for
30 months (Thies 2005, pp. 157–­160).
The Framers did precisely what Aristotle and Montesquieu had
advised. They built powerful oligarchic defenses into the structure
of democracy itself to impair the ability of the many poor to act
democratically and legitimately against the rich few. In Pessen’s
(1980, 177) estimation, “private wealth was now placed on a surer
foundation than ever before in the youthful nation’s history.” The
pressing need at the time of the Convention was to defend the
immediate interests of creditors and major property owners. But
the Framers also worried about ensuring that in a world system of
private credit, the United States could continue to borrow at home
and abroad. This meant that the wealthy and capital controllers
needed credible safeguards against democratic majorities pursuing a more egalitarian vision of society.
Jennifer Nedelsky’s (1990) discussion of this process and its
implications is instructive. The preoccupation of the Framers
with protecting the private property of the rich from democratic
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 187
3/9/17 11:50 AM
188
Jeffrey A. Winters
redistribution “placed inequality at the center of American constitutionalism.” This had profound consequences for wealth stratification, wealth defense, and the limited nature of democracy for
the country.
For the Framers, the protection of property meant the protection
of unequal property and thus the insulation of both property and
inequality from democratic transformation. Effective insulation,
in their view, required wealth-­based inequality of access to political
power. It also meant that the illegitimacy of redistribution defined
the legitimate scope of the state. (1990, p. 2, emphasis in original)
But instead of explicitly saying that they were erecting wealth
defenses for a rich minority against democratic redistribution—­
which might have sounded harsh and overly self-­interested, given
all the delegates were well off—­
the Framers reached for the
moral high ground and cast the matter as a general defense of any
oppressed minority against dangerous majorities.
Their sense of the vulnerability of property in a republic became
the focus for the broader task of securing individual rights against
the tyranny of the majority. [ . . . ] The inherent vulnerability of all
individual rights became transformed into a fear of “the people” as
a threatening propertyless mass whose power must be contained.
The lesson of the formation is that when inequality is built into the
conception of rights as limits to legitimacy, both our institutions
and our understanding of constitutionalism must be distorted.
(Nedelsky 1990, pp. 1–­2)
Properly placed within the state-­level conflicts of the time, it is
evident that the Framers were not just formulating an abstract or
general principle of individual rights and the boundaries majorities should not be able to cross. They were building a conceptual
framework in a specific context of extreme wealth stratification in
which desperate conditions for indebted small farmers resulted
in the overt use of democratic power to relieve the suffering of
the non-­rich (or eruptions of armed resistance in states where
democratic relief was frustrated). In short, it was a profound clash
between participation power and wealth interests that created a
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 188
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
189
profound wealth defense crisis. In the decades and centuries that
followed, American democracy and wealth stratification were able
to go forward with both intact primarily because the Framers had
erected a wall of protections for the wealthy few against the poorer
many. No matter how extreme wealth inequality might become, as
a matter of principle it was now more “unjust”—­and as a matter
of law it was more unconstitutional—­for government to engage in
redistribution in democratic America.
This concept would come back to haunt the body politic from
the start of the twentieth century forward, with a new income tax
on the rich, the New Deal, and welfare and “entitlement” programs
created to cushion America’s underclass. Because narrow matters
of property and wealth defense were presented by the Framers as
general rights of the private individual against government intrusion, conservative attacks on the role of government in the twentieth and twenty-­first centuries, led by think tanks financed by the
rich, had the perverse effect of mobilizing legions of America’s
poor in the effort to roll back welfare costs borne by the rich.
Intensifying Wealth Stratification and a New Popular Threat
Wealth was already highly concentrated at the end of the eighteenth century (Lemon and Nash 1968; Marietta 1995). But the
nature of material stratification in the United States changed in
two important respects during the century that followed. First,
wealth in land, slaves, and merchant activities was replaced by
wealth in infrastructure, industry, banking, and natural resources
(especially oil). And second, despite the devastation of the so-­
called Civil War—­which is best understood as a violent wealth
defense effort on the part of people claiming property rights over
other people—­fortunes grew so rapidly in scale during the second
half of the nineteenth century that they soon dwarfed the richest
dynasties of Europe. Pessen (1971, pp. 996–­998) notes that at his
death in 1831, Stephen Girard, the powerful Philadelphia banker,
had an estate valued at $132 million (all figures in this paragraph
are adjusted to 2014 dollars). In 1845, the estimated net worth of
John Jacob Astor was about $386 million. Rubenstein (1980, p. 20)
reports that top American fortunes increased from $650 million
around 1860 to $2.5 billion in the late 1870s. The riches of John D.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 189
3/9/17 11:50 AM
190
Jeffrey A. Winters
Rockefeller increased from roughly $5.6 billion in 1901 to $21.2
billion in 1913. In just under a century, wealth concentration at
the top of US society had increased more than 150-­fold in constant dollars, and a yawning gap between ordinary citizens and the
nation’s ultra-­rich had formed.
On the democratic side of the equation, important battles were
waged immediately after the Constitutional Convention and into
the early nineteenth century to try to claw back some of the participation power for average citizens that was eclipsed by the Framers. In an effort to speed up ratification, the Federalists grudgingly promised to add a Bill of Rights once the Constitution was
approved. Allowing the ratification process to drag on too long
would allow citizens to figure out the impact the new framework
would have on them and the states, and opponents would start
insisting on unacceptable amendments. Klarman (2011, 568)
notes that several prominent supporters of the Constitution, especially Morris, Washington, and Madison, were convinced that “the
more time the country had to learn about the Constitution and
undertake a full deliberation upon it, the less likely ratification
without substantial amendments would become.”
The Jacksonian era commencing in 1828 was an important
period during which popular forces fought hard to introduce
reforms that benefitted ordinary citizens—­especially white males,
who achieved universal suffrage as property minimums were eliminated. Direct elections of governors were introduced and judges
were also elected in some states. President Andrew Jackson tried
to reduce the power of unelected big bankers, who exerted enormous control over the nation’s credit and the economy. On the
other hand, Jackson’s stance on slavery and Original Americans
was appalling, underscoring the narrow and exclusive meaning
of democracy during the republic’s first 150 years. With regard
to wealth defense, it is noteworthy that none of the Jacksonian
reforms constituted a serious threat to increasing wealth stratification in America.
The first truly frontal wealth defense challenge rooted in participation power erupted at the end of the nineteenth century.
Hit hard by a painful recession in the early 1890s, popular forces
mobilized a major effort to use democratic power to redistribute
the wealth of the richest Americans downward.47 This time the
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 190
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
191
threat came in the form of a new federal income tax targeted
exclusively at the wealthiest citizens. The federal government was
constitutionally constrained in taxing incomes, although it had
done so briefly as an emergency measure in 1860 to raise funds
for the Civil War. The federal income tax of 1894 was the first to
be enacted during peace time.48 The movement to impose this
novel tax was led by William Jennings Bryan in the Democratic
Party, with important support from the Populist Party, socialists,
and other smaller parties. Regressive tariffs had come under attack
from progressives because the largest burdens were borne by average citizens. And there was a risk other regressive taxes could be
imposed if tariffs were reduced. “Farmers in the south and west,
fearing taxes on their land would be increased if the rich were not
taxed instead, allied with workers in the north and east against the
wealthy” (Winters 2011a, p. 227).49 From a technical perspective,
the initiative proposed was a generic income tax. But given the
high personal exemption built into the tax, everyone except the
top one-­tenth of 1% of taxpayers in the country was shielded. The
1894 income tax was effectively a democratic-­political redistribution of American oligarchic wealth.
The legislative debate in Congress was cantankerous. Although
the bill would impose only a modest 2% tax on incomes, conservative representatives attacked the proposal as “class legislation.”
Echoing themes developed in the Constitutional Convention,
defenders of the robber barons characterized the tax as unjust and
un-­American.
One representative attacking the law argued that “the men who
would be reached by the income tax were only such men as those
who controlled the manufacturing and transportation industries of
the country,” the same men who were “making the country worth
living in.” Another opponent said that the bill would “impose a tax
on a man because he was rich,” adding that this “was not Democracy, it was Communism.” Yet another opponent decried the legislation as a predatory move by the many poor against the rich few.
“Those who demand its enactment,” he argued, “are they who by
its provisions are exempted from paying it.” “It is a shame,” he concluded, “that the successful should be made the legal prey of the
unsuccessful.” (Winters 2011a, p. 227)
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 191
3/9/17 11:50 AM
192
Jeffrey A. Winters
Senator John Sherman said the effort to tax the rich was “socialism, communism, devilism” (Pollack 2013, p. 305). Supporters of
the tax argued that it was more fair to tax the wealthy few than
to pass on the burden to the many via tariffs and higher prices
on goods—­which Bryan pointed out was already “class warfare”
against ordinary citizens. Congressman Benton McMillin, a Democrat from Tennessee and chair of the Ways and Means Committee,
responded to the conservatives: “I ask of any reasonable person
whether it is unjust to expect that a small per cent of this enormous revenue shall be placed upon the accumulated wealth of the
country instead of placing all upon the consumption of the people.” McMillin called on Congress to shift the tax burden “from
those who cannot bear it to those who can” (quoted in Pollack
2013, p. 303).
The bill carried in the House by a vote of 204 to 140. Anticipating that the House was more prone to using democracy to oppress
the rich minority, the Framers added the Senate as the first line of
defense against wealth-­threatening legislation. But in this case, the
Senate faltered in its vote—­although true to design, the margin
was much narrower with 39 in favor, 34 against, and the remainder abstaining or not voting. This left the last line of defense: the
nine Justices of the Supreme Court. Recourse by the wealthy to the
courts was swift and effective. Before the legislation could even be
implemented, multiple suits were filed. By January 1895 the matter
was already on its way to the high court. By March the case of Pollock v. Farmers’ Loan and Trust Company was heard. And in May 1895
the Court struck down the tax as unconstitutional by a vote of 5 to
4. Chief Justice Melville Fuller, writing for the majority, attacked
the tax as a “communistic threat.”
The wealth defense mechanisms designed to constrain threats
from the majority prevailed in this instance, although by a whisker. The only way to circumvent the barrier posed by the Justices
was to change the rules of the game by amending the Constitution itself. Over the next 18 years, the movement to defeat the
wealth-­defending Justices gained momentum, and in 1913 the
Sixteenth Amendment was passed. The government immediately
imposed the first permanent peace-­time tax on the richest one-­
half of 1% of Americans. This victory marked the single greatest
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 192
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
193
democracy-­driven setback American oligarchs had endured since
the passage of paper money laws more than 125 years earlier.50
The Welfare State and the Rise of the Wealth Defense Industry
Economic crises and wars have long been the most challenging
moments for those pursuing wealth defense. The rich are usually at their strongest during the “politics of the ordinary,” in part
because powerful structural-­institutional safeguards function reliably, threat-­deflecting ideologies dominate public discourse, and
popular agitation and mobilization are more sporadic. In the
wake of the Great Depression, the government’s role in protecting ordinary and poor Americans expanded dramatically, and an
unprecedented level of wealth redistribution commenced. Many
rich Americans and corporations, as well as associations championing the interests of both, bitterly opposed government intervention. But others recognized that the political-­economic situation
was fragile, and that failing to address the pains of poverty and
dislocation could lead to far worse consequences.51 In this dangerous moment, wealth redistribution played a vital role in preventing radical ideologies and movements from challenging the entire
wealth edifice itself. The Second World War extended the sense of
crisis even further.
The New Deal and the rise of the American welfare state
were a response to a particular historical moment. And yet those
responses created lasting institutional changes and material precedents that were at odds with the dominant ideology of the nation
implanted during the Federal Convention, and which were only
marginally reformed in a more progressive direction during the
nineteenth century. The contradiction between welfare practices
and important undercurrents in America’s heritage resurfaced in
the 1970s and 1980s as a conservative backlash against the state
and redistribution, and continues with a vengeance into the
twenty-­first century. Nedelsky links the contemporary conflict to its
historical moorings:
The modern welfare state does not fit easily within the Federalists’ conceptual framework. Property once provided the
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 193
3/9/17 11:50 AM
194
Jeffrey A. Winters
conceptual boundary to the legitimate scope of government.
That boundary is now threatened by the changing meaning
of property and the demands of equality which simultaneously
challenge traditional rights of property and the traditional
scope of the state. In many crucial respects, we have accepted
the New Deal but rejected its conceptual underpinnings. As
a country, we routinely engage in redistribution to ameliorate
social ills, but we have not simply accepted property as a mere
social construct to be redefined or redistributed without constraint. The status of property as boundary lingers despite its
disintegration as a constitutional concept. We countenance
redistribution as a means, but we have no consensus on a vision
of the state that clearly defines redistribution as a legitimate
goal. (1990, p. 3)
The glaring disconnect between the practice of democratic wealth
redistribution on the one hand, and the bedrock principles of
wealth defense as a protected minority right, established decisively
at America’s founding on the other hand, has seethed below the
surface of the national debate for decades. By weaving a pressing
political need for wealth defense for the rich into a broader narrative of safeguarding all private rights of the individual against a
potentially tyrannical state (democratic or otherwise), the Framers
set the stage for the wide resonance, often even among the poor,
of President Ronald Reagan’s pronouncement in his first inaugural address in 1981 that “Government is not the solution to our
problem; government is the problem.”
By the time of Reagan’s presidency—­more than four decades
into the American welfare state—­
the ideological and organizational tide was turning again in favor of wealth defense. But
the goal was no longer simply to stop democratic majorities
from attempting wealth redistribution. That cat was out of the
bag. It was the much harder task of rolling back an entire state
apparatus of poverty relief and government investment in social
opportunities that had grown up over half a century—­programs
that helped the non-­rich and stalled the decades of gains the
wealthy had enjoyed. The middle decades of the twentieth century had been tremendously beneficial for average Americans
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 194
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
195
Figure 5.3. The Great American Inversion. Living standards have not
improved in four decades for the bottom 90% of American households.
Data from Piketty and Saez (2003, updated to 2012).
and stagnating for the ultra-­rich.52 If we take incomes on the
eve of 1920 as a starting point, figure 5.3 captures what might
be termed the “Great American Inversion.” It shows that the living standards of average Americans had doubled in real terms
by 1955 and tripled by 1970. Wealth stratification was gradually
decreasing as ordinary workers were taking a larger share of an
expanding economic pie. However, once incomes reached “Triple 1920” around 1970, they stagnated and have been almost flat
ever since. During the four decades from 1970 until 2010, the
economy continued to grow. But there was virtually zero improvement in real incomes for the bottom 90% of Americans.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 195
3/9/17 11:50 AM
196
Jeffrey A. Winters
The story was very different for the richest Americans, whose
capacity for wealth defense was undermined for more than half
a century. The bottom half of the top 1% made gradual progress between 1920 and 1970. But their living standards improved
at less than half the rate of average citizens. The top 1% as a
group did not achieve “triple 1920” until the early 1990s, fully
two decades after the median American had done so. The fate
of the ultra-­rich (the top 0.1% and 0.01%) followed a radically
different trajectory. After a brief surge in wealth during the Roaring Twenties, they were hit hard during the Great Depression. In
1955, real incomes for these two strata were actually lower than
they had been around 1920. In 1970, the incomes of American
oligarchs had just barely returned to their 1920 level. And they
would not approach “triple 1920” income levels until the early
1990s. It was during the two decades between 1970 and 1990 that
the Great American Inversion occurred. Figure 5.3 shows that
as real incomes for average Americans remained flat, incomes
of the top one-­tenth and one-­hundredth of 1% soared. By 2007,
the wealthiest Americans enjoyed between six and ten times the
real incomes they had received around 1920. As a consequence,
wealth concentration in the United States surpassed levels
reached before the 1929 Crash. By the early twenty-­first century,
the country was more materially stratified than at any time in its
history.
There are two explanations for this. One is the familiar story
of globalization. Workers were far stronger during the first half
of the twentieth century when investment capital, particularly
in manufacturing, was less globally mobile and the costs of
moving traded goods were high. This geography of production favored American workers as long as they could extend
their union power to the edges of the national space. As they
did, parties and political leaders had to take unions and their
demands seriously. One consequence of this power was that
workers took home a larger share of the value they produced—­
which is to say that the returns to capital were more modest
(Piketty 2014). But by the 1970s, the global mobility of capital
was increasing rapidly as the costs of transport and communications were falling sharply.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 196
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
197
This partly reflected a massive investment by the US military
and diplomatic apparatus to make the world safer for capital and
trade—­a global extension of property and wealth defense. With
Communism and the Cold War as a backdrop, capital-­threatening
regimes around the world were harassed, attacked, and actively
subverted while agencies like the World Bank and IMF deployed
financial resources to support governments and policies that were
friendly to Western markets and property. Even had investment
capital not been able to flee a more unionized United States, the
open trade regime and the rise of industrial production in labor-­
cheap zones of the world would have ensured that imported products would erase American jobs and defeat unions in all globally
mobile sectors.
But this is not the whole story. The second explanation goes
beyond changes in the structural power positions of capital and
labor at the site of production. At the same time that the wealth-­
threatening power of workers and unions was crumbling, the
wealth defense capacities of the richest Americans were increasing
rapidly through the rise of a multi-­billion-­dollar Wealth Defense
Industry. Comprised of armies of expensive tax lawyers, accountants, lobbyists, wealth management professionals, and think-­tank
ideologists (who were networked and organized domestically and
transnationally through firms and client networks), the Wealth
Defense Industry arose for the sole purpose of cashing in on the
determination of the ultra-­rich to end redistribution, to avoid,
evade, or shift tax burdens, and to lobby for beneficial policies, particularly in the tax code.53 In addition to winning gains on the shop
floor and in offices, average Americans had for decades been winning major democratic battles of wealth redistribution. Nowhere
was this more evident than in taxation. During the decades after
World War II, marginal tax rates rose like a grand staircase up the
income distribution of the country. From 1954 to 1963, there were
24 tax brackets, with a top rate of 91% for incomes that exceeded
$3 million.
Figure 5.4 illustrates the structure of taxation the rich faced in
the late 1950s, but also the effectiveness of the Wealth Defense
Industry in reducing their tax burdens. The most striking change
between 1958 and 2013 is that 24 tax brackets were compressed
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 197
3/9/17 11:50 AM
198
Jeffrey A. Winters
Figure 5.4. Income Tax Rates for Married Couples Filing Jointly in
1958 and 2013 (2013$). $100 billion in tax savings for the rich in 2013.
This updates chart 1 in Baneman and Nunns (2012), with additional
calculations and markings by the author.
into seven. Nineteen of those 24 had been higher than the highest 2013 tax bracket of 39.6%. Someone who made $1 million or
$1 billion in 2013 would now be taxed at the same low rate as
someone who made just $150,000 in 1958 (in constant 2013 dollars). Shifting the tax burden downward to the mass affluent and
the upper middle class had the political benefit of broadening
the base of resentment against high taxes and welfare spending.
For America’s millionaires and billionaires, the elimination of the
upper brackets represented a massive cut in wealth redistribution. If the 1958 tax structure had still been in place in 2013, the
wealthiest Americans would have paid an additional $100 billion
in taxes. Note also that the circle at the far left of figure 5.4 shows
that over the same period, the income tax rates for households
earning around $70,000 did not change at all. There is no better visual expression of the rising power of oligarchs and the relative weakness of average Americans during this period than this
picture.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 198
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
199
The US government was suddenly vastly more responsive to
the demands for tax relief by the richest Americans—­a tiny sliver
of the voting population—­while being perfectly unresponsive to
the tens of millions of households whose tax burden remained
steady for half a century. The Wealth Defense Industry, which
has grown in scale and sophistication every decade since the
early 1960s, worked aggressively to pressure for these legislative
changes. Average Americans, and even the mass affluent, had no
parallel phalanx of paid professionals championing their material interests and devising complex instruments for tax avoidance
and evasion.
There is a second way that the dominance of wealth power
over participation power can be expressed. Figure 5.5 shows how
the richest Americans benefit from a system that distributes the
tax burden based on income shares rather than the distribution
of wealth. The triangle on the left represents the US population.
The spire on top signifies the top 1%.54 The inverted triangle
in black on the right displays the distribution of wealth in the
United States, while the inverted grey triangle provides a rough
approximation of the actual distribution of the tax burden using
the current income-­based approach. The top 0.01% of Americans (roughly 16,000 households) own 11.1% of all wealth in
the country but only pay 8.4% of all federal taxes. Although the
bottom 50% of households have zero or negative wealth (which
means they are net debtors), they still pay 3% of all federal taxes.
If the tax burden in the United States simply reflected the distribution of wealth across the population, the richest 0.01%
would pay an additional $79 billion per year (or $5 million
more per household on average), while the bottom half of the
population would enjoy a tax cut of $84 billion (about $1,000
per household). The point of this exercise is to suggest that the
wealthiest Americans are provided, to use Lane’s language, the
government’s protective service for their property and wealth at
a substantial discount. The fact that they enjoyed that discount
in 2012 but did not in the middle decades of the twentieth century reflects a fundamental increase in power and wealth defense
capabilities.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 199
3/9/17 11:50 AM
Figure 5.5(a). The Distribution of Wealth and the Share of Tax Burden
in the United States, 2012. Current taxes based on income.
Figure 5.5(b). The Distribution of Wealth and the Share of Tax Burden
in the United States, 2012. Tax burdens if based on wealth.
200
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 200
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
201
Asset Legibility, Offshore Secrecy Locations, and Complexity
The distribution of wealth in the United States is significantly
more stratified than the distribution of income. Because the richest Americans only take part of their growing wealth as income, the
tax distortion is magnified as one moves up the wealth ladder. At
11.1%, the wealth share of the top 0.01% of households in 2012 was
2.5 times larger than their share of all income reported to the IRS
(just 4.5%). By contrast, the segment of the population between the
50th and 90th percentiles owned just 26% of the nation’s wealth but
reported 43% of all income. Taxing on the basis of income rather
than wealth shifts the tax burden dramatically downward unless progressive tax brackets are in place to ensure that the incomes of the
wealthiest sliver of Americans at the top are taxed more. To do this,
America would need a new grand staircase of tax brackets on the
rich like the one depicted in figure 5.4.
One of the justifications for assessing taxes on the basis of
income rather than wealth concerns the government’s limited
ability to track and trace finances. Scott (1998, p. 2) defines legibility as the “central problem in statecraft.” The state cannot control
that which it cannot see. “The premodern state was, in many crucial respects, partially blind,” Scott writes, “it knew precious little
about its subjects, their wealth, their landholdings and yields, their
location, their very identity.” One of the biggest investments the
modern state has made is in its ability to “see” its citizens, the better to be able to extract from them. The United States constructed
a massive infrastructure that could assign a single number to every
wage-­earner, and then compel all employers not only to report
all forms of income, but to collect the taxes on the government’s
behalf and transfer them to the treasury. Thanks to this system,
a worker could hold ten jobs in eight states in a single year, and
the federal government would still know exactly how much that
individual made in wages that year and had withheld in taxes, plus
a mountain of other data like the size and composition of health
benefits and pension payments. Self-­reported income on a 1040
tax form each year by those receiving wages and salaries in America is redundant.
The main reason the wealth of US citizens is far less legible is
that the government has not invested as much in the capacity to
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 201
3/9/17 11:50 AM
202
Jeffrey A. Winters
track and trace assets.55 Reporting on wealth has long been resisted
vigorously as an invasion of privacy by the wealthiest Americans.
The discrepancy between the transparent treatment of income
and the hidden nature of wealth is a reflection of wealth power
and effective wealth defense. Admittedly, there are two complications to tracking wealth and using it as a starting point for apportioning tax burdens. One is that, unlike the value of a paycheck,
the value of assets fluctuates—­in the case of stocks, changing from
second to second while the market is open. But this is a technical
matter. American cities already impose taxes on the basis of property values (the entire market value, incidentally, not the actual
net worth one owns in the asset). On a weekly basis, brokerage
houses and banks could withhold taxes based on changes in the
value of stocks and deposits just as easily as employers collect taxes
based on incomes.
The second complication is much harder because it involves the
issues of boundedness and territoriality raised earlier in this study.
For centuries, wealthy Americans have held part of their wealth
abroad in the form of financial and real assets. This problem of
sovereignty and distant illegibility was compounded in the closing
decades of the twentieth century as offshore secrecy jurisdictions
arose in tandem with the burgeoning Wealth Defense Industry
(which, incidentally, undertakes vigorous efforts to track the location and scale of wealth around the globe, the better to be able
to sell wealth-­defending strategies to the owners).56 James Henry
(2012), the former chief economist at McKinsey, estimates that
the total amount of global financial dark matter hidden in the offshore world is between $21 and $32 trillion. The US Senate found
that this money, shielded from taxation in places like the Cayman
Islands, the British Virgin Islands, and increasingly in Asian financial hubs like Singapore, cost the US Treasury up to $75 billion in
taxes from individuals, and significantly more if corporate evasion
is included.
The Wealth Defense Industry, and especially its lobbying arm,
played a central role in deflecting damage away from the ultra-­
rich in the wake of the 2008 financial crisis in the United States.
Unlike in the Great Depression, which dealt a major blow in terms
of new regulation and financial costs for oligarchs, wealthy Americans were bailed out in this most recent crisis while the middle
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 202
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
203
class and the poor faced chronic unemployment, financial collapse, bankruptcies, and property foreclosures. This imbalance
was augmented as the Supreme Court rendered a series of decisions equating the deployment of wealth in politics to speech protected by the Bill of Rights. These decisions have facilitated the
conversion of wealth power into political influence, both during
and between elections.57
Conclusions
Wealth stratification lagged behind the development of other
hierarchies based on social rank and status. For thousands of
years after human communities became sedentary, produced ever
larger surpluses, and created increasingly complex village structures, significant differences in wealth did not arise until a small
segment of the social formation developed capacities for defending their disproportionate and exclusive claims to valued material
resources. Once wealth stratification arose, it has proven to be the
most enduring form of domination and exclusion across human
civilization. With few exceptions, and then only for brief intervals,
a remarkably tiny stratum of each community (typically less than
half of the top 1%) is ultra-­rich while the average member survives
on a fraction of these great fortunes. History suggests no relationship of any kind between the form of the polity and the degree
of wealth concentration exhibited. Authoritarian empires over the
millennia have consistently been marked by great wealth stratification. But few can compare to the material inequalities—­and especially the mind-­boggling scale of the largest individual fortunes—­
that exist in the world’s modern capitalist democracies.
Perhaps one of the most remarkable human achievements is
this blend of so much equality with so much inequality. Indeed,
it is difficult to think of another form of social inequality whose
ideological justification does not appear to weaken even as the
oppression gap between the dominant and subordinate groups
widens. I suspect this is because in gender and race relations (as
with other forms of domination based on identity), the excluded
groups eventually win the argument that something has gone terribly wrong with the purportedly individualist sorting mechanism.
It becomes evident that these dominated groups contain many
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 203
3/9/17 11:50 AM
204
Jeffrey A. Winters
members who are as strong, worthy, talented, and capable as the
best of the dominators. Excluding them as a category is thus more
easily cast as being unjust and immoral.
But in the strictly material realm, where individuals are portrayed as fighting it out in competitive markets on the basis of
personal faculties and merit alone, the victorious ideological sentiment is that the sorting mechanism gets it just about right. In
modern wealth-­stratified societies, economic rank is successfully
reinforced as a predominantly individualist outcome whereby
the richest and the poorest earn and deserve their high and low
positions on the wealth ladder. Meanwhile, ancient principles of
egalitarianism are recast as oppression against the small cohort of
ultra-­rich individuals at the top, an unjust infringement of minority rights by majorities, and a disincentive to achievement that is
net-­detrimental to overall societal prosperity, advancement, and
innovation. In such a world, the end of history is reached not
when life-­chances and outcomes around the world become much
more fair and equal, but rather when the familiar pyramid of
wealth inequality now common to all societies becomes rainbow-­
reflective and gender-­fair. Once a community accepts markets and
the accompanying ideology as its sorting mechanism, there are few
available “justice” grounds upon which to criticize anyone getting
too much or too little. Legitimate criticisms and reforms can be
directed exclusively at reducing barriers to access. The only thing
that can be wrong with markets is that they are not fully open and
competitive. All that remains is to step aside and let the wealth
rankings go where individual prowess takes them.
To varying degrees, and with varying success, wealth defense has
always included an ideological component to justify and legitimize
concentrated riches in the hands of a few. Successfully framing
enrichment as a personal achievement among freely interacting
individuals rather than a social or group outcome has had a profound impact. But enforcement and violence played a vital role
from the outset, and continue to be indispensable even as the
deployment of wealth for wealth’s defense has become the predominant mode of oligarchic maintenance within the modern
civil polity. Just because the ultra-­rich are no longer armed or rule
directly does not mean that they are defenseless or even significantly disempowered. A very subtle exchange of defenses unfolded
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 204
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
205
as the rich surrendered their martial roles and warring implements to an armed state that gave explicit guarantees to deploy
its forces to defend property equally, no matter how concentrated
its distribution became. This pact, first hammered out with monarchs and despots, became a more delicate affair as movements
for democracy gained universal suffrage. The new challenge was to
redefine liberty in such a way that “democratic liberty” was understood to be derived from and always blended with a prior and absolute liberty of property, rather than being somehow novel, distinct,
or opposed. To challenge the prerogatives of property, no matter
how unequal its distribution, would be to imperil liberty itself.
The history of America from the 1780s to the present suggests
that this ideology was fought over early and implanted firmly. And
yet democratic majorities have not always agreed fully or stuck to
the national script. As the concentration of wealth has changed
over the centuries, and as crises large and small have triggered
action and presented political opportunities, people have resisted
and democracy has repeatedly posed threats to those holding
great fortunes. And the rich have responded with vigorous wealth
defense efforts. But the power resources available to the average
citizen and to the wealthy have not remained constant or balanced.
Institutions have changed (some, as we saw, were redesigned specifically to inhibit participation power, others to enhance the
potency of wealth power), the mobilizational capacities of average
citizens have expanded and contracted, and the instruments and
strategies of wealth defense have evolved. This is especially evident
in the rise of the Wealth Defense Industry, a conglomeration that
oligarchs did not create, but which also would not exist apart from
the tremendous demand on the part of the ultra-­rich for defenses
against redistribution.
What is most important analytically and theoretically in the
American context about the Wealth Defense Industry is that it
does not fit within a standard interest-­group pluralist framework.
Pluralism is grounded on a notion of participation power within
democracies. On the input side, different groups organize and
press their interests upon the government. Responsive policies
are the output. And all of this is supposed to unfold on a firmament of democracy, representation, and participation. In theory,
majorities—­especially when they are large—­ought to prevail most
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 205
3/9/17 11:50 AM
206
Jeffrey A. Winters
of the time. And yet, the Wealth Defense Industry is not a creation
of American oligarchs. They did not organize it, they do not populate it, and they certainly do not lead or run it. The Industry is
purely an expression of structural wealth power—­a material power
resource, not a democratic-­
mobilizational one. The combined
wealth power of the masses is vastly larger. But it is unavailable in
sufficient liquidity and concentration to be of any political significance. The irony is that it would require enormous mobilization
and participation for all the tiny vectors of mass wealth power to
align and be potent.
This is not the case for the ultra-­rich. Their wealth power is
concentrated, available, and oriented in the same general wealth-­
defense direction without any organization at all. So strong is their
political demand for wealth defense that an entire industry staffed
by non-­oligarchs arose in their service (and in many instances
their own personal disservice, insofar as one of the greatest successes of the ultra-­rich has been to shift tax burdens downward
to the mass affluent, a stratum consisting of millions of educated
professionals, many of whom are gainfully employed in the Wealth
Defense Industry). This does not preclude oligarchs from forming
networks that amplify their influence and impact. But the wealth
power of the rich is not contingent upon mobilization as it is for
ordinary citizens. Only a theoretical framework that can differentiate between the qualitatively and quantitatively different power
resources that converge in modern societies (some of which certainly involve pluralist participation) can illuminate the contemporary politics of wealth defense and the realm of contestation
between wealth power and participation power, between oligarchy
and democracy.
The argument presented here seeks not only to examine
extreme material stratification and explore how it is sustained, but
also to delve into the much harder question of how today’s yawning
disparities of wealth can persist and even widen under conditions
of significant gains in popular participation and obvious political
freedom. The inescapable conclusion is that liberal democracy
as currently structured and practiced within market capitalism is
poorly equipped to address one of the most obvious and damaging
forms of injustice even the most free of people endure: extreme
maldistributions of society’s resources. The case of the United
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 206
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
207
States dating back to the 1780s demonstrates that for democracy
to coexist stably with massive economic inequalities, democracy
itself had to be sufficiently impaired to hamper non-­rich majorities
from seeking a more fair societal distribution via legitimate and
democratic remedies. This has not stopped ordinary citizens from
trying to use democracy to close the wealth gap. But it has made
redistribution much harder while allaying the wealth defense fears
of the rich.
Notes
The author would like to thank Michael Hanchard, Shamus Khan, David
Lyons, and Jed Purdy for their helpful comments and criticisms.
1 Woodburn (1982) writes that egalitarianism is always “politically
assertive.” Among hunter-­gatherers, “the possession by all men, however
physically weak, cowardly, unskilled or socially inept, of the means to kill
secretly anyone perceived as a threat to their own well-­being not only limits predation and exploitation; it also acts directly as a powerful leveling
mechanism. Inequalities of wealth, power and prestige are a potential
source of envy and resentment and can be dangerous for holders where
means of effective protection are lacking” (p. 436). Flannery and Marcus
(2012, p. 549) emphasize the egalitarian impulse, observing that “generosity is a widespread principle among hunters and gatherers.” The principle is backed up by “constant social pressure” that makes it harder for
ambitious and ungenerous individuals to gain a foothold. It is clear that
impulses supporting both egalitarianism and wealth stratification have existed across human history. Which is dominant depends on the degree of
social organization and power surrounding each impulse.
2 Hale (1923) presents the classic analysis of coercion under conditions of private property and markets. On the subsequent literature engaging Hale, see Samuels (1984) and Getzler (1996).
3 Lamond (2000) analyzes the coercive foundations of law.
4 Cowen (2014) argues that in the age of increasingly smart machines
and robotics, the trend will be toward even more concentration of wealth
at the top than capitalism has achieved thus far.
5 Pareto (1935 [1916]; 1968 [1901]) analyzed this flux as the “circulation of elites.”
6 Or almost always a top. Wealth stratification was dealt a serious, if
temporary, blow in the twentieth century in the Soviet Union and Eastern Europe, China, Vietnam, Cambodia, and Cuba, among others. All
of these polities continued to have political and military elites, but their
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 207
3/9/17 11:50 AM
208
Jeffrey A. Winters
wealthiest citizens were expropriated, driven abroad, or killed. In every
case, ultra-­wealthy oligarchs have re-­emerged at a stunning pace and on
a remarkable scale, even in the countries that continue to call themselves
communist-­socialist. This phenomenon was examined at the “Workshop
on Oligarchic Formation,” Social Sciences Program, Center for Public
Policy Transformation, Jakarta, in cooperation with Northwestern University’s Equality Development and Globalization Studies (EDGS) program.
June 19–­20, 2014.
7 See freedomhouse.org. Freedom House categorizes countries as
free, partly free, and not free.
8 Given there is substantial net-­negative wealth at the bottom of both
pyramids (people who have more debt than assets), some in the bottom
66% for the world and bottom 50% for the United States have net-­positive
wealth. Thus, the net wealth position for the bottom segment of the population as a whole is zero.
9 Data on global wealth are adapted from Credit Suisse (2013, p. 94).
The wealth distribution in the United States is from Saez and Zucman
(2014).
10 These Roman-­US comparisons are from table 3.2 on Rome in Winters (2011a, p. 92), AREPPIM (2015) data tracking billionaire wealth, and
census data on median wealth in America. In 2015, the total wealth of
America’s 500 top billionaires was $2.5 trillion. The wealth of the top 500
in Rome was less liquid, but they ruled directly and maintained significant
personal coercive capacities for wealth defense. The wealth of top 500 in
the United States is vastly more liquid (and thus versatile), but they generally do not rule directly nor maintain coercive forces. An obvious objection to the Roman comparison is that the median American is far better
off than Rome’s landless farmers and slaves. Pierson (2010) traces the argument that greater inequality is the price society pays for a better overall
standard of living back at least to William Godwin’s Enquiry Concerning Political Justice published in 1793. Whatever the merits of the argument, the
contemporary economic order is not packaged ideologically along such
lines. And, as critics from David Graham Phillips during the Gilded Age
to Matt Taibbi today have pointed out, unbridled capitalism and hyper-­
enrichment at the top have repeatedly resulted in pathological conditions
and deep crises borne most painfully by the non-­rich.
11 There have been periods when the wealth gap has narrowed slightly
or at least stopped growing. But these have been relatively brief interruptions of a much larger trend. The irony is that as participatory democracy
has widened dramatically in the United States since independence, wealth
concentration has increased equally dramatically. “When J.P. Morgan died
in 1914, leaving an estate of some $80 million [$1.86 billion in 2014 dol-
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 208
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
209
lars],” Rubenstein (1980, p. 18) writes, “John D. Rockefeller was supposed
to have said, ‘And to think—­he wasn’t even a wealthy man.’ Rockefeller’s
fortune, as well as those of his fellow billionaires Henry Ford and Andrew
Mellon, and those in the centimillionaire class held by such famous American magnates as the Vanderbilts, Astors, Dukes and Andrew Carnegie,
had never previously been equaled in size in modern world history.” Larger fortunes had, however, been amassed in ancient times. Upon his return
from his campaign in Gaul, Julius Caesar brought with him a treasure that
would be worth between $15 billion and $40 billion today (Winters 2011a,
p. 95). But even the riches of Caesar are now dwarfed by vast holdings of
multibillionaires like Bill Gates, Carlos Slim, and Warren Buffett. By 2015,
the fortunes of these tycoons were rapidly approaching $100 billion each.
12 Winters 2011a, p. 6. See also pp. 20–­26.
13 Madison’s (1787a) discussion of factions in The Federalist Papers, particularly those based on wealth inequality, invokes a sorting model, which
he views as natural and moral. The problem for Madison is not wealth
inequality, but how to design government institutions that neutralize the
threats posed by the jealous many against the rich few. The rights of property (including its grossly unequal distribution) start for Madison with
“the diversity in the faculties of men.” The equal protection of men endowed with different faculties “is the first object of government.” This is
an important statement in defense of liberty. But from this premise it follows that governments must also defend the wealth inequalities these human faculties produce as people get sorted into the conflictual categories
of rich and poor. “From the protection of different and unequal faculties
of acquiring property,” Madison continues, “the possession of different
degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors,
ensues a division of the society into different interests and parties. The
latent causes of [wealth] faction are thus sown in the nature of man.” As
a later section will argue, the task at the Constitutional Convention, then,
was to redesign the US government to ensure that poor majorities could
not use democracy to threaten wealth distributions grounded in unequal
human faculties. See also Super (2013).
14 Data on the Philippines and China are from Winters (2013, table 1,
p. 22).
15 Achievement-­based rank societies provided numerous non-­material
ways for ambitious individuals to gain status, Flannery and Marcus (2012,
p. 551) remind us, including “prowess in raiding or head-­taking, skill in
entrepreneurial exchange, or sponsorship of increasingly important rituals. While all these paths could lead to renown, prominent individuals
were not allowed to become a hereditary elite. They could serve as role
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 209
3/9/17 11:50 AM
210
Jeffrey A. Winters
models for their children but could not guarantee them the same prestige.”
16 The Andaman Islands and early Samoa, for instance, were ecologies rich in community-­sustaining resources. But this abundance was not
converted into pronounced private or clan fortunes (Flannery and Marcus, 2012, passim). And McIntosh (1999) points out that abundant land
and high mobility resulted in muted patterns of economic stratification
among African chiefs, who derived most of their status from their control
over people.
17 Ellis 1993, p. 2. Ellis cites Mazur’s influence in making this micro-­
macro distinction. Betzig (2014, p. 80) focuses on a strange interval in
the history of human domination during which regimes of hyperintensive control over multiple mates prevailed. For most of their first 100,000
years, homo sapiens lived in small, mostly nomadic groups in which males
had few mates and reproductive patterns across males, even in status-­
stratified bands or tribes, were fairly uniform. But an extreme form of
reproductive variance arose with the first empires. “In civilizations which
began in Mesopotamia, Egypt, India, and China, and then moved on to
Greece and Rome, kings collected thousands of women, whose children
were supported and guarded by thousands of eunuchs. Just a few hundred
years ago, that trend reversed. Obligate sterility ended, and reproductive
variance [across males] declined.” The rulers’ strategy for creating a dominant lineage able to retain concentrated wealth across generations was to
“mate with hundreds of women, pass their power on to a son by one legitimate wife, and take the lives of men who get in their way” (Betzig 1993, p.
37). Gathering and then controlling all these women was expensive, often
involving wealth-­dispersing dowry payments. To cover these costs, rulers
extracted “other women’s and especially other men’s surplus production
to raise their own reproduction.” This always involved significant levels of
coercion: “the most polygynous rulers on earth have been despotic rulers”
(1993, p. 38).
18 Natural variations in capacities for aggression, violence, and greed
might explain why a single individual would attempt to dominate and
exploit everyone else in a community. But societies are never controlled
by lone figures. Even if a single actor eventually emerges as primus inter
pares, it takes multiple individuals to dominate whole communities in a
lasting way. And if all these actors are predisposed to be ambitious and
aggressive, it is just as likely that they would constantly try to dominate
each other rather than cohere and jointly dominate everyone else. Families, clans, sects, and groups provided the initial connections, coherence,
and organization needed to direct aggression, dominance, and eventually
wealth exclusion downward rather than horizontally.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 210
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
211
19 McIntosh (1999, pp. 6–­7) argues that abundant land helps account
for the modest levels of wealth stratification in African societies. She notes
that African chiefships tended “to be over people rather than land,” and
goods were often dispersed as quickly as they were accumulated. Apart
from cattle, “no other scarce, storable, and reproducible form of wealth
existed by which to gain political clients or acquire wives.” The African
cases, McIntosh concludes, suggest that “accumulation and manipulation of surplus by elites primarily to further personal political agendas is a
highly variable aspect of political hierarchies.”
20 Being especially successful at this game of war, expansion, and enrichment also pushed the process of political change. “When aggrandizement meant the acquisition of land (as in Madagascar and Hawai’i), it
could produce territories too large for the management principles of
rank society,” Flannery and Marcus write. “That set the stage for the political hierarchy characteristic of kingdoms” (2012, p. 555).
21 “The social definition of wielders of force consists in their being the
military-­political, predatory, leisure, and noble class all at the same time”
(Volkov 2000, p. 713).
22 These variations are developed more fully in the discussion of warring, ruling, sultanistic, and civil oligarchies in Winters (2011a, pp. 32–­36
and passim).
23 Volkov (2000, pp. 722–­723) provides an illustration from the Kievan
Prince Oleg and his collection of dan’, which translates as “dues and taxes,
tributes, and tolls.” “The Russian word poddannye, meaning subjects to the
ruler as well as those who are ‘under the tribute’ (pod dan’iu), captures
the warrior method of accounting, whereby the territory and its population are seen through the lens of extraction—­the subjects are those who
pay. The archaic word dan is also discernable in the word poddanstvo (‘being under the tribute’) which is used to denote one’s belonging to a particular domain and which later was superseded by the term grazhdanstvo
signifying the modern idea of citizenship. Dan’ in Kievan Rus’ was collected mostly in kind (furs, honey, wax) either through the tribes bringing it to Kiev, or the prince and his retinue making the winter tour of the
provinces to collect it. During the summer, the prince, joined by a large
number of merchant vessels from other Russian cities, organized and
headed merchant convoys to Constantinople [to convert the tribute into
cash riches].” Note here the transitional form combining the roving pattern of collection and the prince sitting at the center in Kiev waiting for
surpluses to come to him.
24 Lonsdale (1981, p. 160) writes that “restraint in rulers is essential
to the exercise of power; delegation of authority is otherwise impossible,”
adding that “if only for reasons of economy, rulers like to be loved.”
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 211
3/9/17 11:50 AM
212
Jeffrey A. Winters
25 Also see Goerner and Thompson (1996). Discussing the sentencing
of a defendant, Robert Cover provides a vivid example of effective coercion. “He sits, usually quietly, as if engaged in civil discourse. If convicted,
the defendant walks—­escorted—­to prolonged confinement, usually without significant disturbance to the civil appearance of the event. It is of
course grotesque to assume that the civil facade is ‘voluntary’ except in
the sense that it represents the defendant’s autonomous recognition of
the overwhelming array of violence ranged against him, and of the hopelessness of resistance or outcry—­most prisoners walk into prison because
they know they will be dragged or beaten into prison if they do not walk”
(1986, p. 1607, quoted in Blomley 2003).
26 Volkov’s (2000, 2002) example of protection rackets in post-­Soviet
Russia is interesting because the dominant pattern was not for firms to
take on the coercive functions of the state themselves, but instead to out-­
source the task to hired private firms selling wealth defense.
27 All citations of Aristotle (1996) follow the standard format and refer
to the volume edited by Everson. Adam Smith (1776) was acutely aware
of the threats wealth attracted, and he believed civil government arose
primarily to defend society’s material stratification. Wealth inequality creates “distinct interests in society,” Smith writes. “The rich, in particular,
are necessarily interested to support that order of things which can alone
secure them in the possession of their own advantages.” The non-­rich
sometimes faced extreme hardships, but were also driven by jealousies in
Smith’s estimation. “Wherever there is great property there is great inequality,” he observes. “The affluence of the rich excites the indignation
of the poor, who are often both driven by want, and prompted by envy, to
invade his possessions.” If the rich are unarmed or do not rule directly,
the armed state is the sole source of security. “It is only under the shelter
of the civil magistrate that the owner of that valuable property, which is
acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security. He is at all times surrounded
by unknown enemies, whom, though he never provoked, he can never appease, and from whose injustice he can be protected only by the powerful
arm of the civil magistrate continually held up to chastise it. The acquisition of valuable and extensive property, therefore, necessarily requires
the establishment of civil government.” It is a straightforward matter of
wealth defense. “Civil government, so far as it is instituted for the security of property,” Smith concludes, “is in reality instituted for the defence
of the rich against the poor, or of those who have some property against
those who have none at all.”
28 Spirit of the Laws, Book 11, Chapter 6. 1748. press-­pubs.uchicago.
edu >. Modern democracy ended up protecting the rich so well that Mc-
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 212
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
213
Cormick (2011) proposed the creation of a Roman-­inspired Tribunate of
the Plebs as the only hope for confronting the distorting effects of wealth
power.
29 The work of Jack Pole (1966) is especially important for understanding this era.
30 Pessen (1971, 1980) and Rubenstein (1980) provide convincing
evidence that contradicts the Tocquevillian image of a new American nation with equality of conditions. Attacking what he terms the “egalitarian
myth,” Pessen shows that wealth concentration was high, the scale of the
largest fortunes in the United States rivaled those of Europe, and barely
2% of the tycoons in the late eighteenth and early nineteenth centuries
came from humble origins. The rest came from wealthy and politically
connected families.
31 Charles A. Beard (1913) famously argued that the Constitution
should be understood as an “economic document.” His focus was on the
personal financial and property interests of the delegates at the Convention in Philadelphia to explain their motivations and actions. The argument being made here does not emphasize the private fortunes of the
Framers, but instead centers on the broader wealth defense crisis leading
up to the Convention. The delegates viewed the behavior of state legislatures and violent rebels as posing a dangerous threat to the basic institutions of private property. Their perspective was primarily big picture rather than narrowly self-­interested—­even if these two levels overlapped. For
a comprehensive treatment of the Beardian interpretation and its recent
rehabilitation, see Edling (2013), which is an introduction to a special
issue of the journal American Political Thought on Beard’s agenda-­setting
study.
32 Efforts to amend the Articles to enable the federal government to
tax failed in 1781 and 1786. A convention was called in Annapolis in September 1786, but only five states showed up. Maier (2012, 386) notes that
“virtually everyone recognized the need to strengthen the central government. The issue was how.”
33 Seven states issued paper money, bills of credit, or both. They were
Rhode Island, New Jersey, New York, Georgia, North Carolina, South Carolina, and Pennsylvania. In New York and South Carolina, they were not
legal tender (although the Convention notes of Rufus King [1787] mention that in South Carolina “a majority of the People are in favor thereof”). Important sources on paper money and the struggle over debt relief
include Nevins 1969 [1924], Jensen 1950, Morrill 1969, Kaminski 1989,
Schweitzer 1989, Hall 1991, and Thies 2005.
34 The hard currency states were Massachusetts, Delaware, New Hampshire, Connecticut, Maryland, and Virginia.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 213
3/9/17 11:50 AM
214
Jeffrey A. Winters
35 On these popular uprisings, see Szatmary 1980, Schweitzer 1989,
Richards 2002, and Holton 2007.
36 On Madison’s proposed “federal negative,” as the veto was called,
see Lacroix 2010. Gibson notes that the failure to pass the veto left Madison “despondent.” Madison wrote that without this potent weapon, the
federal government would likely be “materially defective” in blocking
unacceptable democratic decisions at the state level—­a telling choice of
words given the wealth defense battles at the heart of the constitutional
redesign (quoted in Gibson 2012, p. 189).
37 “Although Constitutional Convention delegates Elbridge Gerry and
Alexander Hamilton ended up on opposite sides of the ratification debate, in Philadelphia they described the convention’s fundamental task
using the same phrase,” Holton (2005, p. 339) observes. “The goal, both
told their fellow delegates, was to rein in the ‘excess of democracy’ in the
thirteen state governments.” Holton (2007) adds: “Alexander Hamilton,
the most ostentatiously conservative of the convention delegates, affirmed
that many Americans—­not just himself—­were growing ‘tired of an excess
of democracy.’ Others identified the problem as ‘a headstrong democracy,’ a ‘prevailing rage of excessive democracy,’ a ‘republican frenzy,’ ‘democratic tyranny,’ and ‘democratic licentiousness.’” Although technically
not theft, debtors were using the power of their numbers to redistribute
wealth with democratic legitimacy.
38 Holton 2005, p. 36. “Playing upon the widespread belief that bond
speculators were men who had avoided danger during the war,” Holton
continues, “the editors of the western Massachusetts Hampshire Herald
demanded, ‘Will they who have already copiously bled for their country,
think it equitable, that the small remains of their blood should be drained
off to swell the turgid veins of those who have dwelt in security?’”
39 The aggrieved farmers of Massachusetts did elect a significant number of new representatives supporting paper money to the state legislature
in 1786. But Holton (2005, p. 354) notes that their efforts were “cancelled
out by other towns that expressed their anger at the legislature’s harsh fiscal and monetary policies by withdrawing their assemblymen altogether.
Fifty-­two fewer assemblymen showed up for the summer 1786 session of
the Massachusetts House of Representatives than had participated in the
previous session. Absenteeism was especially high among western representatives, whose attendance fell to a three-­year low.” This attempt to undermine the legitimacy of the legislature by boycotting it not only failed,
but maintained power in the hands of currency hardliners defending
creditor interests.
40 Fitzpatrick 1931–­1944. Less than two weeks later, Washington wrote
to Henry Lee: “the commotions, and temper of numerous bodies in the
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 214
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
215
Eastern States, are equally to be lamented and deprecated. They exhibit a
melancholy proof . . . that mankind when left to themselves are unfit for
their own Government. I am mortified beyond expression when I view the
clouds that have spread over the brightest morn that ever dawned upon
any Country.” Washington was convinced that the uprising in Massachusetts was the work of a few trouble makers holding sway over a larger segment of the population. “In a word, I am lost in amazement when I behold
what intrigue, the interested views of desperate characters, ignorance and
jealousy of the minor part, are capable of effecting, as a scourge on the
major part of our fellow Citizens of the Union; for it is hardly to be supposed that the great body of the people, tho’ they will not act, can be so
shortsighted, or enveloped in darkness, as not to see rays of a distant sun
thro’ all this mist of intoxication and folly” (ibid.).
41 For most of the delegates from the slave states, it was a wealth defense worry of a different kind that shaped their interest in the Convention. One of the most valuable forms of capital in America was the ownership of humans. Slave owners wanted their state prerogatives protected
but also could benefit from a stronger national security apparatus to prevent or suppress slave revolts. The proximate cause of the Convention was
not, however, a slave-­based crisis. On the importance of the slavery issue at
the Convention, see Kaminski (1995) and Waldstreicher (2009, 2013).
42 McHenry (1787, notes from May 29). The next day, Randolph went
further, calling for a need to restrain the “fury of democracy.” See Pierce
(1787, notes from May 30).
43 Paterson (1787).
44 Yates 1787 (notes from June 19).
45 All quotations in this paragraph are from Madison (1787, notes
from June 26). Madison made similar comments earlier that month. See
King (1787, notes from June 4).
46 Yates (1787, notes from June 26). Hamilton made the same point
a week earlier: “All communities divide themselves into the few and the
many. The first are the rich and well born, the other the mass of the people. The voice of the people has been said to be the voice of God; and
however generally this maxim has been quoted and believed, it is not true
in fact. The people are turbulent and changing; they seldom judge or determine right. Give therefore to the first class a distinct, permanent share
in the government. They will check the unsteadiness of the second, and
as they cannot receive any advantage by a change, they therefore will ever
maintain good government.” Hamilton concluded: “Nothing but a permanent body can check the imprudence of democracy. Their turbulent
and uncontroling disposition requires checks” (Yates 1787, notes from
June 19).
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 215
3/9/17 11:50 AM
216
Jeffrey A. Winters
47 This section draws liberally on Winters 2011a, chapter 5, which extends the analysis of the income tax battle beyond the 1913 constitutional
amendment.
48 As Pollack (2013, p. 299) writes, however, it was hardly the first attempt to impose a sharply progressive income tax on the rich. “From 1874
to 1894, no fewer than 68 bills were introduced in Congress for a graduated income tax—­albeit, none of these ever came to the floor for a vote.”
49 Whitte (1986), Herber (1988), and Pollack (2013) analyze the politics surrounding the 1894 tax.
50 Although space does not permit a full elaboration, it turns out
the victory was short-­lived. “In the years and decades that followed, oligarchs mounted a sustained campaign of wealth defense to counter the
new threats to their material position. The battle had two consequences. As tax rates on the wealthy were increased—­prompted by the onset
of World War I—­oligarchs used their formidable capacities for resistance
and evasion to force the government to lower rates and shift the burdens
increasingly onto the wealthy strata immediately below them, who were
far more numerous but less able materially to mount an effective defense.
Confronted with the costs of the New Deal and World War II, and facing a wall of powerful resistance from oligarchs who quickly refined their
techniques for income defense, Congress turned the federal income tax
against the much poorer majority who had supported it precisely because
it exempted everyone but the rich. The oligarchic prey had turned the
tables on the democratic predator” (Winters 2011a, p. 228).
51 On the politics surrounding the New Deal, see Skocpol and Finegold (1982), Skocpol and Amenta (1985), Skocpol, Finegold, and Goldfield (1990), Domhoff (1991), and Swenson (1997).
52 Data for this section are drawn from Winters 2011b (pp. 23–­24) and
income tables developed by Piketty and Saez (2012 updated).
53 If there is a single pioneer of the Wealth Defense Industry, it is
surely Burton W. Kanter of Chicago. The New York Times described Kanter
as “one of the nation’s most prominent tax lawyers.” He made a career
“pushing the limits of the tax laws. [ . . . ] He pioneered the use of foreign trusts to reduce taxes. He lectured for decades on his creative tax
structures at the University of Chicago Law School and wrote a regular
column in The Journal of Taxation” (Story 2005). Forbes noted that Kanter
“crafted tax-­saving strategies for Hollywood producers and mega-­wealthy
families,” and “counted the billionaire Pritzker family [owners of the Hyatt hotel chain] as clients and for years famously paid no federal income
taxes of his own.” He claimed the IRS had audited him every year from
1961 until his death in 2001 (Barrett 2009). Kanter began his tax specialization in the late 1950s when tax rates on the rich were high and the
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 216
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
217
demand for sophisticated tax avoidance and evasion instruments was increasing. In the early 1960s, he created some of the first “shelf companies”
and offshore secrecy banks in the Bahamas and Cayman Islands. The most
notorious of these was Castle Bank & Trust. Clients of the bank included
“Chicago’s Pritzker family, Detroit land developer Arnold Arnoff, Playboy
magazine publisher Hugh Hefner, Penthouse magazine owner Robert Guccione, actor Tony Curtis, the former rock group Creedence Clearwater,
and three men—­Morris Dalitz, Morris Kleinman, and Samuel A. Tucker—­
who have been described in Justice Department documents as organized
crime figures.” IRS agents who investigated the bank and its clients in
1973 considered it “the single biggest tax-­evasion strike in IRS history.”
However, the case was shut down after the CIA intervened on “national
security” grounds because the bank was also a conduit for “the funding of
clandestine operations against Cuba and other covert intelligence operations directed at countries in Latin America and the Far East” (Drinkhall
1980). For an extensive discussion of the Castle Bank case and Kanter’s
involvement, see Block 1988.
54 Estimates of US wealth distribution are from Saez and Zucman
(2014). Data on taxation are from Piketty and Saez (2003, updated to
2012).
55 Rubenstein (1980, p. 34) cites the rare exceptions of “the German
census of millionaires undertaken only in 1913 or the Australian War Census of Income and Wealth, a unique work but one compiled only once, in
1915.”
56 See Credit Suisse’s (2013) global wealth reports and databooks. For
extensive documentation of the Wealth Defense Industry, the complicated
instruments it creates, and the services it sells, its use of offshore secrecy
havens, and the estimated losses in taxes to the US Treasury, see US Senate (2003, 2005, 2006). Winters (2011a, pp. 233–­254) provides a detailed
analysis of the Wealth Defense Industry.
57 The one significant price the rich may pay as a result of the crisis
and rampant tax evasion is a major new effort to increase wealth legibility
and reporting on a global basis. The Foreign Account Tax Compliance
Act (FATCA) went into effect in July 2014. It requires financial institutions around the world, including in secrecy jurisdictions, to register with
the IRS and report on all assets held by Americans. This is the first step
toward building a global legibility infrastructure comparable to the US income tax withholding system built domestically almost a century ago. The
problem with the initiative is that the Treasury estimates that it will recover just under $9 billion in evaded taxes over the coming decade. If Senate
estimates of $75 billion in annual taxes lost due to offshore holdings are
even remotely accurate, then FATCA will recover less than 1% of the loss
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 217
3/9/17 11:50 AM
218
Jeffrey A. Winters
over the coming ten years. For a detailed description of the new offshore
reporting system, see GAO (2013, especially pp. 2–­11) and Byrnes (2014).
Bibliography
AREPPIM. 2015. “The 2015 Complete List of World’s Billionaires.” March.
stats.areppim.com.
Aristotle. 1996. The Politics and The Constitution of Athens. Edited by Stephen Everson (original translation by Benjamin Jowett). Cambridge:
Cambridge University Press.
Baneman, Daniel and Jim Nunns. 2012. “Income Tax Paid at Each Tax
Rate, 1958–­2009.” Tax Policy Center, Urban Institute and Brookings
Institution. April. www.taxpolicycenter.org.
Barrett, William P. 2009. “From the Grave, Tax Lawyer to Rich Beats IRS
Again.” Forbes, December 15. www.forbes.com.
Bates, Robert, Avner Greif, and Smita Singh. 2002. “Organizing Violence.”
Journal of Conflict Resolution, vol. 46, no. 5 (October): 599–­628.
Beard, Charles A. 1913. An Economic Interpretation of the Constitution of the
United States. New York: Macmillan.
Bendix, Reinhard and Seymour Martin Lipset. 1953. Class, Status, and
Power: A Reader in Social Stratification. Free Press of Glencoe.
Betzig, Laura. 1993. “Sex, Succession, and Stratification in the First Six Civilizations: How Powerful Men Reproduced, Passed Power on to Their
Sons, and Used Power to Defend Their Wealth, Women, and Children.”
In Social Stratification and Socioeconomic Inequality. Volume 1: A Comparative
Biosocial Analysis, ed. Lee Ellis. Westport, CT: Praeger, 37–­74.
———. 2014. “Eusociality in History.” Human Nature vol. 25, no. 1 (March):
80–­99. link.springer.com.
Block, Alan A. 1998. Masters of Paradise: Organized Crime and the Internal
Revenue Service in The Bahamas. New Brunswick, NJ: Transaction Publishers.
Blomley, Nicholas. 2003. “Law, Property, and the Geography of Violence:
The Frontier, the Survey, and the Grid.” Annals of the Association of American Geographers vol. 93, no. 1 (March): 121–­141.
Burns, James MacGregor and Susan Dunn. 2004. George Washington. New
York: Times Books, Henry Holt and Company.
Byrnes IV, William H. 2014. “LexisNexis Guide to FATCA Compliance,
2d ed.” Thomas Jefferson School of Law Research Paper No. 2457671.
July. ssrn.com.
Collins, Chuck and Josh Hoxie. 2015. “The Forbes 400 and the Rest of
Us.” Institute for Policy Studies. www.ips-­dc.org.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 218
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
219
Cover, Robert. 1986. “Violence and the Word.” Yale Law Journal 95, pp.
1601–­1629.
Cowen, Tyler. 2014. Average Is Over: Powering America beyond the Age of the
Great Stagnation. New York: Plume.
Credit Suisse. 2013. “Global Wealth Databook.” publications.credit-­
suisse.com.
———. 2013a. “Global Wealth Report.” October. publications.credit-­suisse.
com.
———. 2014. “Global Wealth Databook.” publications.credit-­suisse.com.
———. 2014a. “Global Wealth Report.” October. publications.credit-­suisse.
com.
———. 2015. “Global Wealth Databook.” October. publications.credit-­
suisse.com.
———. 2015a. “Global Wealth Report.” October. publications.credit-­suisse.
com.
Dahl, Robert A. 1998. On Democracy. New Haven, CT: Yale University Press.
Domhoff, G. William. 1991. “Class, Power, and Parties in the New Deal: A
Critique of Skocpol’s State Autonomy Theory.” Berkeley Journal of Sociology, vol. 36, pp. 1–­49.
Drinkhall, Jim. 1980. “CIA Helped Quash Major, Star-­Studded Tax Evasion Case.” Washington Post, April 24, pp. A21–­A22. jfk.hood.edu.
Edling, Max M. 2013. “Introduction to the Centennial Symposium on
Charles Beard’s Economic Interpretation.” American Political Thought, vol.
2, no. 2 (Fall): 259–­263. www.jstor.org.
Elias, Norbert. 1993. The Civilizing Process. Volume Two. State Formation and
Civilization. Oxford: Basil Blackwell.
Ellis, Lee, ed. 1993. Social Stratification and Socioeconomic Inequality. Volume
1: A Comparative Biosocial Analysis. Westport, CT: Praeger.
Fitzpatrick, John C., ed. 1931–­1944. “Letter from George Washington to
David Humphreys, October 22, 1786,” and “Letter from George Washington to Henry Lee, October 31, 1786.” In The Writings of George Washington from the Original Manuscript Sources, 1745–­1799. www.loc.gov.
Flannery, Kent and Joyce Marcus. 2012. The Creation of Inequality: How Our
Prehistoric Ancestors Set the Stage for Monarchy, Slavery, and Empire. Cambridge, MA: Harvard University Press.
Freedom House. “Individual Country Ratings and Status, FIW 1973–­
2016.” freedomhouse.org.
GAO. 2013. “Offshore Tax Evasion: IRS Has Collected Billions of Dollars,
but May Be Missing Continued Evasion.” Report to Congressional Requesters. GAO-­13–­318. United States Government Accountability Office. March.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 219
3/9/17 11:50 AM
220
Jeffrey A. Winters
Getzler, Joshua. 1996. “Theories of Property and Economic Development.” Journal of Interdisciplinary History, vol. 26, no. 4 (Spring): 639–­
669.
Gibson, Alan. 2012. “Madison’s ‘Great Desideratum’: Impartial Administration and the Extended Republic.” American Political Thought, vol. 1,
no. 2 (Fall): 181–­207.
Golden, Charles and Andrew K. Scherer. 2013. “Territory, Trust, Growth,
and Collapse in Classic Period Maya Kingdoms.” Current Anthropology,
vol. 54, no. 4 (August): 397–­435.
Goerner, E. A. and Walter J. Thompson. 1996. “Politics and Coercion.”
Political Theory, vol. 24, no. 4 (November): 620–­652.
Hale, Robert L. 1923. “Coercion and Distribution in a Supposedly Non-­
Coercive State.” Political Science Quarterly, vol. 38, no. 3 (September):
470–­494.
Hall, Arthur P. 1991. “State-­Issued Bills of Credit and the United States
Constitution: The Political Economy of Paper Money in Maryland,
New York, Pennsylvania and South Carolina.” PhD dissertation, University of Georgia.
Hardoon, Deborah, Sophia Ayele, and Ricardo Fuentes-­Nieva. 2016. “An
Economy for the 1%.” Oxfam Briefing Paper, January 18. Oxfam International. www.oxfam.org.
Henry, James S. 2012. “The Price of Offshore Revisited.” Tax Justice Network. www.taxjustice.net.
Herber, Bernard P. 1988. “Federal Income Tax Reform in the United
States: How Did It Happen? What Did It Do? Where Do We Go from
Here?” American Journal of Economics and Sociology, vol. 47, no. 4, pp.
391–­408.
Holton, Woody. 2005. “An ‘Excess of Democracy’: Or a Shortage?: The
Federalists’ Earliest Adversaries.” Journal of the Early Republic, vol. 25,
no. 3 (Fall): 339–­382.
———. 2007. Unruly Americans and the Origins of the Constitution. New York:
Hill & Wang.
Jensen, Merrill M. 1950. The New Nation: A History of the United States during
the Confederation, 1781–­1789. New York: Vintage Books.
Kaminski, John P. 1989. Paper Politics: The Northern State Loan Offices during
the Confederation, 1781–­1790. New York: Garland Publishing.
———, ed. 1995. A Necessary Evil? Slavery and the Debate over the Constitution.
Madison, WI: Madison House.
King, Rufus. 1787. “Notes of Rufus King in the Federal Convention of
1787.” Reprinted from The Life and Correspondence of Rufus King (New
York, 1894), vol. 1, pp. 587–­619. avalon.law.yale.edu.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 220
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
221
Klarman, Michael J. 2011. “The Founding Revisited: Ratification: The People
Debate The Constitution, 1787–­1788 by Pauline Maier.” Harvard Law Review, vol. 125, no. 2 (December): 544–­578. www.jstor.org.
Lacroix, Alison L. 2010. “The Authority for Federalism: Madison’s Negative and the Origins of Federal Ideology.” Law and History Review, vol.
28, no. 2 (May): 451–­505.
Lamond, Grant. 2000. “The Coerciveness of Law.” Oxford Journal of Legal
Studies, vol. 20, no. 1 (Spring): 39–­62.
Lane, Frederic C. 1950. “Oceanic Expansion: Force and Enterprise in the
Creation of Oceanic Commerce.” Journal of Economic History, vol. 10,
Supplement: The Tasks of Economic History, pp. 19–­31.
———. 1958. “Economic Consequences of Organized Violence.” Journal of
Economic History 18, no. 4 (December): 401–­417.
———. 1966. “The Economic Meaning of War and Protection.” Venice and
History: The Collected Papers of Frederic C. Lane. Baltimore, MD: Johns
Hopkins University Press.
Larson, Edward J. and Michael P. Winship. 2005. The Constitutional Convention: A Narrative History from the Notes of James Madison. New York: Modern Library, Random House.
Lemon, James T. and Gary B. Nash. 1968. “The Distribution of Wealth in
Eighteenth-­Century America: A Century of Change in Chester County,
Pennsylvania, 1693–­1802.” Journal of Social History, vol. 2, no. 1 (Autumn): 1–­24.
Liddle, R. William. 2013. “Improving the Quality of Democracy in Indonesia: Toward a Theory of Action.” Indonesia 96, Special Issue: Wealth,
Power, and Contemporary Indonesian Politics (October): 59–­80.
Lonsdale, John. 1981. “States and Social Processes in Africa: A Historiographical Survey.” African Studies Review, vol. 24, no. 2/3, Social
Science and Humanistic Research on Africa: An Assessment (June–­
September): 139–­225.
Madison, James. 1787. “Notes on the Debates in the Federal Convention.”
Text from Gaillard Hund and James Brown Scott, eds., The Debates in
the Federal Convention of 1787, Which Framed the Constitution of the United
States of America, Reported by James Madison, A Delegate from the State of Virginia. Oxford University Press, 1920. avalon.law.yale.edu.
———. 1787a. “The Federalist No. 10: The Utility of the Union as a Safeguard against Domestic Faction and Insurrection (continued).” The
Constitution Society. www.constitution.org.
———. 1962–­91. “Vices of the Political System of the United States.” In
The Papers of James Madison. Congressional Series. William T. Hutchinson et al., ed. Vol. 10. Chicago: University of Chicago Press.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 221
3/9/17 11:50 AM
222
Jeffrey A. Winters
Maier, Pauline. 2012. “Narrative, Interpretation, and the Ratification of
the Constitution.” William and Mary Quarterly, vol. 69, no. 2 (April):
382–­390. www.jstor.org.
Marietta, Jack D. 1995. “The Distribution of Wealth in Eighteenth-­Century
America: Nine Chester County Tax Lists, 1693–­1799.” Pennsylvania History, vol. 62, no. 4 (Fall): 532–­545.
McCormick, John. 2011. Machiavellian Democracy. New York and Cambridge: Cambridge University Press.
McHenry, James. 1787. “Papers of Dr. James McHenry on the Federal
Convention of 1787.” Philadelphia, May 14. Reprinted from the American Historical Review, Vol. XI (Washington, DC, 1905–­6), pp. 596–­618.
avalon.law.yale.edu.
McIntosh, Susan Keech, ed. 1999. Beyond Chiefdoms: Pathways to Complexity
in Africa. Cambridge: Cambridge University Press.
Morrill, James R. 1969. The Practice and Politics of Fiat Finance: North Carolina in the Confederation, 1783–­1789. Chapel Hill: University of North
Carolina Press.
Nedelsky, Jennifer. 1990. Private Property and the Limits of American Constitutionalism: The Madisonian Framework and Its Legacy. Chicago: University
of Chicago Press.
Nevins, Allan. 1969 [1924]. The American States During and After the Revolution 1775–­1789. New York: Augustus M. Kelley.
Page, Benjamin I., Larry M. Bartels, and Jason Seawright. 2013. “Democracy and the Policy Preferences of Wealthy Americans.” Perspectives on
Politics, vol. 11, no. 1 (March): 51–­73.
Pareto, Vilfredo. 1935 [1916]. The Mind and Society: A Treatise on General
Sociology. ed. Arthur Livingston, trans. Andrew Bongiorno, Arthur Livingston, and James Harvey Rogers. New York: Harcourt, Brace, and
Company.
———. 1968 [1901]. The Rise and Fall of the Elites: An Application of Theoretical Sociology. Totowa, NJ: Bedminster Press.
Paterson ,William. 1787. “Notes of William Paterson in the Federal Convention of 1787.” Philadelphia, May 29. Reprinted from the American
Historical Review, Vol. IX (Washington, DC, 1904), pp. 312–­340. avalon.
law.yale.edu.
Pessen, Edward. 1971. “The Egalitarian Myth and the American Social Reality: Wealth, Mobility, and Equality in the ‘Era of the Common Man.’”
American Historical Review, vol. 76, no. 4 (October): 989–­1034.
———. 1980. “Wealth in America Before 1865,” in Wealth and the Wealthy
in the Modern World, ed. William D. Rubenstein. London: Croon Helm,
pp. 167–­188.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 222
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
223
Pierce, William. 1787. “Notes of Major William Pierce (Georgia) in the
Federal Convention of 1787.” Philadelphia. Reprinted from American
Historical Review, vol. III (1898), pp. 317–­334. avalon.law.yale.edu.
Pierson, Chris. 2010. “The Reluctant Pirate: Godwin, Justice, and Property.” Journal of the History of Ideas, vol. 71, no. 4 (October): 569–­591.
Piketty, Thomas. 2014. Capital in the Twenty-­First Century. Cambridge, MA:
Belknap Press.
Piketty, Thomas and Emmanuel Saez. 2003 [updated to 2012]. “Income
Inequality in the United States, 1913–­1998.” Quarterly Journal of Economics, vol. 118, no. 1: 1–­39.
Pole, Jack R. 1966. Political Representation in England and the Origins of the
American Republic. Berkeley: University of California Press.
Pollack, Sheldon D. 2013. “Origins of the Modern Income Tax, 1894–­
1913.” Tax Lawyer, vol. 66, no. 2 (Winter): 295–­330.
Rees, Mark A. 1997. “Coercion, Tribute and Chiefly Authority: The Regional Development of Mississippian Political Culture.” Southeastern Archaeology, vol. 16, no. 2 (Winter): 113–­133.
Richards, Leonard L. 2002. Shays’ Rebellion: The American Revolution’s Final
Battle. Philadelphia: University of Pennsylvania Press.
Rubenstein, William D. 1980. “Introduction.” In Wealth and the Wealthy in
the Modern World, ed. Rubenstein, ed. London: Croon Helm, pp. 9–­45.
Sack, Robert David. 1986. Human Territoriality: Its Theory and History. Cambridge: Cambridge University Press.
Saez, Emmanuel and Gabriel Zucman. 2014. “The Distribution of US
Wealth, Capital Income and Returns since 1913.” gabriel-­zucman.eu.
Samuels, Warren J. 1984. “On the Nature and Existence of Economic Coercion: The Correspondence of Robert Lee Hale and Thomas Nixon
Carver.” Journal of Economic Issues, vol. 18, no. 4 (December): 1027–­
1048.
Schweitzer, Mary M. 1989. “State-­Issued Currency and the Ratification of
the U.S. Constitution.” Journal of Economic History, vol. 49, no. 2 (June):
311–­322.
Scott, James C. 1998. Seeing Like a State: How Certain Schemes to Improve the
Human Condition Have Failed. New Haven, CT: Yale University Press.
Skocpol, Theda and Edwin Amenta. 1985. “Did Capitalists Shape Social
Security?” American Sociological Review, vol. 50, no. 4 (August): 572–­575.
Skocpol, Theda and Kenneth Finegold. 1982. “State Capacity and Economic Intervention in the Early New Deal.” Political Science Quarterly,
vol. 97, no. 2 (Summer): 255–­278.
Skocpol, Theda, Kenneth Finegold, and Michael Goldfield. 1990. American Political Science Review, vol. 84, no. 4 (December): 1297–­1315.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 223
3/9/17 11:50 AM
224
Jeffrey A. Winters
Smith, Adam. 1776. The Wealth of Nations. www.econlib.org.
Story, Louise. 2005. “Secrecy Is Lifted in Some Tax Court Trials.” New York
Times, July 12. www.nytimes.com.
Super, David A. 2013. “A New New Property.” Columbia Law Review, vol.
113, no. 7 (November): 1773–­1896.
Swenson, Peter. 1997. “Arranged Alliance: Business Interests in the New
Deal.” Politics & Society, vol. 25, no. 1, pp. 66–­116.
Szatmary, David P. 1980. Shays’ Rebellion: The Making of an Agrarian Insurrection. Amherst: University of Massachusetts Press.
Tax Foundation. 2013. “Federal Individual Income Tax Rates History, Income Years 1913–­2013.” taxfoundation.org.
Thies, Clifford F. 2005. “Money and the Adoption of the U.S. Constitution.” Journal of Private Enterprise, vol. 20, no. 2 (Spring): 147–­164.
Tilly, Charles. 1985. “War Making and State Making as Organized Crime.”
In Bringing the State Back In, ed. P. Evans, D. Rueschemeyer, and T.
Skocpol. Cambridge: Cambridge University Press.
———. 1998. Durable Inequality. Berkeley: University of California Press.
———. 2005. “Rethinking Inequality.” Polish Sociological Review, no. 151,
pp. 207–­219.
Urban, Patricia, Edward Schortman, and Marne Ausec. 2002. “Power
Without Bounds? Middle Preclassic Political Developments in the
Naco Valley, Honduras.” Latin American Antiquity, vol. 13, no. 2 (June):
131–­152.
US Senate. 2003. “U.S. Tax Shelter Industry: The Role of Accountants,
Lawyers, and Financial Professionals—­Four KPMG Case Studies: FLIP,
OPIS, BLIPS, and SC2.” Report Prepared by the Minority Staff of the
Permanent Subcommittee on Investigations of the Committee on Governmental Affairs. United States Senate. Released in Conjunction with
the Permanent Subcommittee on Investigations’ Hearings on November 18 and 20, 2003. Washington, DC: GPO.
———. 2005. “The Role of Professional Firms in the U.S. Tax Shelter Industry.” Report Prepared by the Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental
Affairs. United States Senate. April 13.
———. 2006. “Tax Haven Abuses: The Enablers, the Tools and Secrecy.”
Minority & Majority Staff Report, Permanent Subcommittee on Investigations. United States Senate. Committee on Homeland Security and
Governmental Affairs. Norm Coleman, Chairman; Carl Levin, Ranking
Minority Member. Released in Conjunction with the Permanent Subcommittee on Investigations August 1, 2006. Hearing.
Volkov, Vadim. 2000. “The Political Economy of Protection Rackets in the
Past and the Present.” Social Research, vol. 67, no. 3 (Fall): 709–­744.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 224
3/9/17 11:50 AM
Wealth Defense and the Complicity of Liberal Democracy
225
———. 2002. Violent Entrepreneurs: The Use of Force in the Making of Russian
Capitalism. Ithaca, NY: Cornell University Press.
Waldstreicher, David. 2009. Slavery’s Constitution: From Revolution to Ratification. New York: Hill & Wang.
———. 2013. “The Beardian Legacy, the Madisonian Moment, and the
Politics of Slavery.” American Political Thought, vol. 2, no. 2 (Fall): 274–­
282. www.jstor.org.
Whitte, John F. 1986. The Politics and Development of the Federal Income Tax.
Madison: University of Wisconsin Press.
Winters, Jeffrey A. 2011a. Oligarchy. New York and Cambridge: Cambridge
University Press.
———. 2011b. “Oligarchy and Democracy.” American Interest, vol. 7, no. 2
(November/December): 18–­27.
———. 2013. “Oligarchy and Democracy in Indonesia.” Indonesia 96, Special Issue: Wealth, Power, and Contemporary Indonesian Politics (October):
11–­33.
Woodburn, James. 1982. “Egalitarian Societies.” Man, New Series, vol. 17,
no. 3 (September): 431–­451.
Yates, Robert. 1787. “Notes of the Secret Debates of the Federal Convention of 1787, Taken by the Late Hon Robert Yates, Chief Justice of the
State of New York, and One of the Delegates from That State to the
Said Convention.” Philadelphia. Printed for G. Templeman (Washington, DC, 1886). avalon.law.yale.edu.
This content downloaded from 67.221.65.222 on Tue, 08 Sep 2020 23:45:11 UTC
All use subject to https://about.jstor.org/terms
KnightandSchwartzberg_i_323.indd 225
3/9/17 11:50 AM