Part 1

excerpted from the book

Ruling America

a history of wealth and power in a democracy

by Steve Fraser and Gary Gerstle

Harvard University Press, 2005, paperback

[America] is a democracy. The people rule. And yet the people do not rule; elites, patriciates, castes, classes have ruled in their stead.

Beginning sometime after World War II, and with increasing force in the wake of the Reagan "revolution," a gathering consensus concluded that events, "History," the impersonal forces of the market, or some other analogous abstractions rule, not classes or elites.

Every president of enduring reputation up to John F. Kennedy is remembered for some vital crusade against a usurping or entrenched elite. Washington and Jefferson overthrew the minions of the British monarchy and then fended off attempts at aristocratic counterrevolution by home-grown Tories. Andrew Jackson waged war against a "Monster Bank" that presumed to monopolize the credit resources of a fledgling nation and turn enterprising citizens into its vassals. Lincoln purged the nation of its mortal sin by extirpating the "slaveocracy." Teddy Roosevelt unleashed rhetorical thunderbolts against those "malefactors of great wealth" whose gargantuan corporate combines showed no regard for the public welfare and bought and sold senators and congressmen like so many pigs at a market. Woodrow Wilson promised, if swept into office, to take on the "money trust," that financial octopus whose tentacles were strangling to death the economic opportunity and democratic independence that were every citizen's birthright. In the midst of the greatest calamity since the Civil War, FDR chased the "money changers from the temple" and declared that his New Deal would henceforth police and punish the "economic royalists" who had brought on the Great Depression. Even the mild-mannered Dwight Eisenhower left office cautioning the country against the overweening power of the "military-industrial complex."

[The] proliferation of power centers ... produced a fissure within the "leisure class" between those absorbed by their own self-interest and self-regard, psychologically and politically deaf and blind to the economic mayhem and social antagonisms accumulating around them, and a fraction of that same universe-people such as the Roosevelts, for example, or those to-the-manner-born Establishment figures of the next generation - who self-consciously took up the challenge of ruling on behalf of the whole commonwealth, even if that meant now and then risking the enmity of their social peers. Within these circles, a sense of social trusteeship subdued the instinct for self-indulgence.

As late as the 1790s, a powerful group of Anglophiles, calling themselves Federalists and led by Alexander Hamilton, wanted to establish a British-style aristocratic republic in the United States. And they might have succeeded had they not overreached themselves and, panicked by the French Revolution, imposed repressive measures that, ironically, caused a democratic opposition to coalesce. That strategic error opened the way for Thomas Jefferson's election in 1800 and made ... a "decentralized and ... democratic structure of power" an enduring feature of American politics. By 1820, the Federalists had all but disappeared as a political force. Subsequent elites had to accommodate themselves to a democratic politics that had become a defining feature of the American republic.

Older elites also accommodated themselves to the New Deal and found ways to exercise political influence in this liberal age. The most celebrated was the Establishment, a fragment of the Progressive Era plutocracy that kept its wealth and its wits during the Great Depression. These circles did not fall into the rabid hostility to the New Deal that characterized the plutocracy in general. Instead, its members found a way to demarcate themselves from the Roosevelt haters, to nurture links to the New Dealers, and, when war came in the 1940s, to exercise extraordinary influence in foreign affairs.

Where the "robber barons" had no tradition to speak of, and the Morgan milieu still gave precedence to private over public concerns, the Establishment came closer than anything else since the first fifty years of the republic to defining itself in terms of public service... its members were patricians in the manner of the antebellum merchant grandees and Virginia planters, convinced that their wealth, education, and disinterestedness had endowed them with a special capacity for rule. They disliked the messy world of mass politics but found ways to tolerate or circumvent it. Ultimately, however, the arrogance of the Establishment, and its disdain for popular politics in an age infused with democratic desire, not just in the United States but throughout the disintegrating European colonial world, did it in.

Elite rule in a nominally democratic political system seems to generate counterrevolution ... elite campaigns to roll back or contain democratic advances... The Constitution ... was meant to arrest the devolution of power downward and outward into the middling ranks of the postcolonial world. Gilded Age industrial titans were likewise driven into the political arena only by social upheavals on the land and popular eruptions in the great cities. It was, moreover, the challenge of populism in 1896, more than the giant corporate amalgamations at the turn of the century which implanted a nationwide class consciousness among the people ... The ideological conviction and cultural self-consciousness of today s conservative elites derive ... from their determination to reverse what they regard as the revolutionary momentum of the New Deal.

... the two Roosevelts attempted to police and humanize the marketplace and, in the process, earned the undying hatred of their peers as "traitors to their class." While the Establishment ... worked to constrain or defeat revolutionary movements for national independence all over the world, it also erected a framework of multilateral relations ...

At Philadelphia, America's aspiring elites flirted with several reactionary ideas before drafting a form of government that they believed could legitimize their desire to rule by successfully appealing to the shared values of the Revolution.

Two-thirds of the fifty-five delegates who gathered in Philadelphia were rich; three-fifths either came from genteel families or, like New York's Alexander Hamilton, had married into one. Most had served in Congress, and three had been generals in the Continental Army, including George Washington, who presided over the convention's deliberations. The delegates agreed to meet in secret sessions with no outsiders present, which allowed them to be far more candid about the dangers of popular rule than they would have dared to be in an open forum.

Charles Pinckney, South Carolina delegate to the Constitutional Convention

If slavery be wrong, it is justified by the example of the world ... In all ages one half of mankind have been slaves.

Madison, Jefferson, and their Republican allies developed a three-pronged strategy to prevent the consolidation of a national ruling class along Hamiltonian lines. First was the argument for "strict construction" of the federal Constitution, particularly in regard to the powers of the national government

... The second and most important prong of Madison's and Jefferson's opposition strategy was the coordinated mobilization of voters to support Republican candidates in state and federal elections. In Federalist no. 10, Madison had warned against the dangers posed by factious majorities, and he had championed a far-flung polity with large electoral districts as "a republican remedy for the diseases most incident to republican government.

In the summer of 1798, congressional Federalists, with Hamilton's encouragement, pushed through the Alien and Sedition Acts aimed at silencing the government's critics in the Republican press.

Out of desperation, Jefferson and Madison in the fall of 1798 formulated ... the assertion of residual sovereignty in the states and of the rights of states to defy federal laws they deemed unconstitutional.

... What really undermined the Federalists was the Sedition Act itself. It angered printers so greatly that they established new Republican newspapers faster than Federalist courts could shut down the older ones. Between 1798 and 1800, the number of Republican papers rose by over 50 percent nationwide. The Federalists' attempt to silence their opponents did just the opposite: it energized them and prepared the way for a Republican victory in 1800.

Jefferson's election marked the end of anglicization in American politics and ushered in a new, more decentralized and more democratic structure of power-one much closer to that envisioned by the Antifederalists than by the Federalists during the debates over ratification of the Constitution.

Under this new structure, members of the middling sort exercised far greater political influence in the United States than anywhere else in the Western world. In the early decades of the nineteenth century, the right to vote in most states was extended to nearly all adult white men. Equally important, the culture of politics shifted. Ordinary citizens increasingly expected their elected representatives to reflect, rather than refine, their views when making government decisions. Candidates for public office presented themselves as the people's "friends" rather than as their "fathers." Yet democratization in the political realm did not produce an egalitarian social order. Even as they lost political hegemony, the elites grew richer, and class hierarchy remained an important feature of American life. In the North, enterprising merchants-most famously the coterie of Bostonians who erected the nation's first integrated textile mills at Waltham and Lowell-pioneered new forms of business incorporation to protect property rights and to promote capitalist development in lieu of direct federal assistance. In the South, large planters responded with alacrity and impressive economic efficiency to skyrocketing global (particularly British) demand for cotton. In ways not anticipated by the framers of the federal Constitution, political democracy proved highly compatible with the preservation and accumulation of private wealth and with the persistence of economic inequality.

Slavery went unmentioned in Jefferson's famous inaugural address of March 4, 1801. That speech is rightly celebrated for its inspiring and conciliatory presentation of the democratic side of Jefferson's political vision. While he affirmed that "the will of the majority is in all cases to prevail"-a precept profoundly at odds with Madison's approach to majority factions in Federalist no. 10 - Jefferson proclaimed as a "sacred principle" that the will of the majority, "to be rightful, must be reasonable; that the minority possess their equal rights, which equal laws must protect." He envisioned a "wise and frugal government" that would barely act on society, serving mainly to "restrain men from injuring one another, which shall leave them otherwise to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned." Within this context, he characterized "the general government ... as the sheet anchor of our peace at home and safety abroad," yet he called for "the support of the state governments in all their rights, as the most competent administrations for our domestic concerns and the surest bulwarks against anti-republican tendencies." In short, Jefferson limned in his own graceful words the Antifederalist alternative to the Federalist synthesis of 1787-88: a continental confederation of sovereign states whose central authority would possess enough power to repel foreign intrusion, sell public lands to eager farmers, and deliver the mail, but play no other major role in the lives of ordinary American citizens."

Jefferson and his Republican supporters repudiated the British model of government in both style and substance. As president, Jefferson went out of his way not to appear monarchical-to the point of personally answering the front door of the White House in slippers and other casual attire. He considered himself a natural aristocrat but also a true embodiment of the people's will. Because he possessed abiding faith in the virtue of the nation's agricultural majority, he was sure that, once freed from Federalist deceptions, the citizenry would recognize as self-evident the same political principles and governmental policies that he, as their president, knew to be right.

Under Jefferson's leadership, the Republicans abolished internal taxes, shrank the military, and slashed annual expenditures of the federal government. Although they did not dismantle the national bank or quash financial markets, by reducing the size and scope of the federal government, they transferred much of the responsibility for ruling the country to the separate state legislatures, where men of modest fortunes and middling status held more sway than they did in Congress. As a result, the locus of political power shifted downward in the social order, though not below the ranks of propertied white men.

The devolution of political power from natural aristocrats to men of the middling sort had begun during the 1780s, when localists wrested control from cosmopolitans in many state legislatures. The process was interrupted, even reversed, in the 1790s, when Federalists dominated the national government and promoted a program of national integration, if not full-fledged consolidation. With the Jeffersonian victory in 1800, state governments once again became key battlegrounds in political disputes over fiscal policy and economic development.

During the 1850s, fear of the "money power" gave way to fear of the "slave power" in the North, and in 1860 Abraham Lincoln was elected president on a platform firmly committed to the containment of slavery. Before he even took office, leaders of the lower South-citing the Jeffersonian doctrines of 1776 and 1798 but defying the principle of majority rule-fulfilled the threat made by South Carolina's delegates at the Constitutional Convention of 1787: they took their states out of the Union.

The outbreak of the Civil War confirmed Hamilton's darkest forebodings about the dangers of fragmentation and democracy. In the absence of a national ruling class, the American republic imploded.

How is it possible for a minority of citizens to get their way time after time in an ostensibly democratic polity? That question became central to northerners' discovery of a "slave power" in the United States beginning in the mid-1830s. The slave power signified not the power of slaves but the power that accrued to slave owners by virtue of their owning slaves. Antislavery critics charged that slave owners exerted power far out of proportion to their numbers, and that they used their power to enlarge the realm of slavery in violation of the country's founding tenets of liberty and equality. The enlargement of slavery, critics argued, threatened the rights of free people and corrupted the republic.' As John Gorham Palfrey of Massachusetts wrote in 1846, the founders of the United States would have been appalled to learn "that a vast majority of the high offices in all departments [of government], including nearly three-fourths of the offices in the army and navy, had been held by slave-owners, that slavery had been the great dictator of its policy, foreign and domestic, and that at this moment none but slaveholders were ministers of the nation at any foreign court, though there are more than three millions of voters in the country, and only one hundred thousand of them hold slaves."

There was more than paranoia in Palfrey's lament. Slave owners wielded power in the United States from the American Revolution to the Civil War. The slave power originated in the combination of terror and succor that slave owners used to rule over enslaved people and compel them to labor. The wealth, standing, and reputation that slave owning gave to slave owners enabled them to assert political leadership among the broader free population throughout the southern United States. Then constitutional, partisan, and ideological mechanisms translated slave owners' regional power into national power, resulting, as Palfrey observed, in the conspicuous presence of slave owners in the highest echelons of American politics. Slave owners disagreed among themselves on many important political issues, yet they formed a dominant element in the constellation of political forces that governed the country and protected slavery through the first half of the nineteenth century.

Abraham Lincoln's election to the presidency in 1860 finally convinced southern slave owners that the only way to protect slavery, and with it their whole way of life, was to have their own country. The self-defense of slavery culminated in the secession of eleven southern states and the formation of the Confederate States of America; but secession turned out to be the downfall of the slave power. It precipitated a war that ultimately linked the fate of slavery to the survival of the Confederacy, and as the Confederacy fell, so too did the slave system it was formed to protect. This outcome was not part of some grand design but was accomplished piecemeal during the war and in its wake as a consequence of complex military and political pressures. In the end, defeat and emancipation destroyed slave owners as a ruling class and forced the vestige of that class to reconstitute itself in a new world of "free labor" and black citizenship.

There were approximately eighty thousand house holds with slaves in the United States in 1790, making up around 15 percent of all American households. Although slave owners lost tens of thousands of slaves during the Revolution, they retained almost 700,000 slaves, or roughly 18 percent of the total population of the United States, under their dominion. Slavery was legal in every state except Massachusetts, but slave owners were largely concentrated in the southern states of Maryland, Virginia, North Carolina, South Carolina, and Georgia. In none of these states were slave owners a majority. Even in South Carolina, the state most thoroughly identified with slavery, slave-owning households constituted only one-third of all households. rice, and indigo - the three major commodities grown by slave labor - accounted for almost one-third of the value of the new country's exports.

Thomas Jefferson, about slavery, in 'Notes on the State of Virginia'

I tremble for my country when I reflect that God is just.

In 1830, 69 percent of the most affluent Bostonians (those in the top 1 percent of asset holders) were merchants. This top 1 percent owned 16 percent of the city's taxable assets in 1820, 33 percent in 1833, and 37 percent in 1848. By 1860, Philadelphia's wealthiest 1 percent of the population owned o percent of the city's assets. In New York, the concentration of wealth was even greater: about nine thousand individuals - 1.4 percent of New York's inhabitants, most of them merchants - owned roughly 71 percent of the city's real and personal wealth in the mid-1850s.

In the wake of the industrial revolution during the 1830s and beyond, the mercantile community increasingly came under pressure, especially from a newly emerging group of powerful artisans-turned-manufacturers and an ever more mobilized and enfranchised populace. Most significantly, the mercantile elite faced a challenge from "a rising industrialist class." These men had accumulated capital in novel ways, and largely outside the older kinship and social networks of the northern mercantile elite. By the 1840s they were showing up in the higher ranks of the tax rolls at a remarkable rate. The majority of manufacturers were artisans who had expanded their shops and transformed themselves into entrepreneurs. As one historian observed, by mid-century "they were knocking at the doors of political power and social prestige so long guarded by their commercial brethren."

The industrial revolution came late to the United States, compared to England. But once it came, it arrived vigorously. As elsewhere, cotton spinning expanded first as merchants invested some of their capital in spinning mills built along the fast-flowing rivers of New England and the mid-Atlantic states. After 1830, railroads began crisscrossing the United States, devouring fabulous amounts of capital and eventually spurring the growth of coal mining, along with iron and steel production.

Merchants, emphasizing the importance of stability and predictability to their business enterprises, shunned disruptions of any kind, and desired a society orderly in its domestic relations and peaceful in its relations to the larger world. To them, order still depended to some extent on social hierarchies, and thus they struggled to maintain their position as stewards of the community. They also embraced an internationalist outlook, seeing themselves as the bearers of a fundamentally cosmopolitan spirit, an outlook undoubtedly strengthened by the memory of the devastating impact that the War of 1812 had had on their business undertakings.

The merchants' worldview, meanwhile, contrasted sharply with that of manufacturers, which emphasized the ingenuity and inventiveness of America's mechanics as the basis for the United States' rapid economic development. Furthermore, manufacturers were often hostile toward the mercantile elite, whom they saw as non-producers living off the labor of others, agitating for free trade, importing cheap goods from Europe, and providing credit on harsh terms. American industry, they believed, was a "wide-spread elm, with scores of parasites clinging to its trunk," namely, merchants and bankers)'6 Manufacturers asserted that, "unlike commerce," industry consists not merely in the exchange of goods but in "giving them a new form and greatly increased value." Therefore, "as an agent of civilization, all other pursuits fade before it." Manufacturers often saw themselves as part of the "producing classes," or just as "labor," drawing a dividing line between themselves and the commercial or financial bourgeoisie. Indeed, while historian Sean Wilentz correctly noted that "the defense of the 'producing classes' [included] an amalgam of 'honorable' anticapitalist small masters and wage earners," it also allowed more substantial manufacturers to rally under the banner of an ill-defined but deeply rooted producerism. This set manufacturers clearly apart from the mercantile elite and, even more so, its slaveholders.

Central to the manufacturers' worldview was a positive attitude toward labor, which was perhaps not surprising, considering that many of them had risen out of the ranks of the working class themselves. Glorifying the "mechanic arts," they saw "the dignity of labor ... in its results, and not in the form of employment." For these manufacturers, free labor was the basis of the republic, and in order to secure opportunities for all, the prospects for industry and agriculture had to be promising. Expanding opportunities for farmers, in effect, were to defuse the rising tensions between industrialization and democratization. Horace Greeley, the publisher of the New York Tribune and a leading spokesman for this position, wanted for "each man ... an assured chance to earn, and then an assurance of the just fruits of his labors." To secure the promises of free labor, America's fledging industries needed protection and farmers undisturbed access to the rich lands of the West-a political program that brought manufacturers into sharply drawn conflict with the nation's mercantile elite.

Most of the nation's manufacturing was, in the 1880s and 1890s, contained within a narrow belt that extended from New England south through Pennsylvania and west through Ohio and parts of the upper Midwest. Outside this manufacturing belt a large and increasingly vocal segment of the population in the prairie and southern states was convinced that it was being robbed of its rightful share of the nation's newfound wealth by eastern capitalists who controlled the nation's railroads and set its monetary policy.

It was these "agrarians," organized into what became known as the Grange or the granger movement in the 1870s and 1880s, and thereafter the National Alliances and the People's Party, who posed the greatest challenge to the business elites. Unlike the industrial workers, the agrarians had sufficient votes in the statehouses and in Congress to translate their suspicions of capital into legislation designed to rein in its manifest powers.

The agrarians' chief concerns were with the railroad officials, who, they believed, were overcharging them, and the upholders of the gold standard, who were taking money from their pockets by deflating commodity prices. While the question of the gold standard would be effectively removed from the political agenda in the late 1870s, the question of railroad rates would dominate the prairie state legislatures throughout the 1870s and into the 1880s.

The issue of railroad regulation was, in fact, the Trojan horse with which the politicians would breach the walls protecting the economy from their interference. As corporations chartered by the states, funded by them and by Congress, and charged with moving the mails in peacetime and the troops in wartime, the railroads were tied to government in a manner quite different from other big businesses.

By the late 1880s, the Senate was already known as the "Millionaires' Club" in recognition of the many businessmen who served there, in large part to protect the interests of their regions and/or sectors.

There was, it appeared, only one issue on which all the business interests could agree, and that was on the necessity of maintaining the gold standard against those who wanted to inflate the currency by coining silver. Those who held large amounts of capital, no matter how or where it had been accumulated, did not want the value of that capital diluted by inflation; those who bought and sold securities in Europe (and that included most major bankers, merchants, manufacturers, and railroad directors) feared that an unstable dollar, not backed by and convertible to gold, would be disastrous for business.

The Gilded Age millionaires' rhetorical adherence to the doctrine of the survival of the fittest," first articulated by Spencer and seized upon by a generation of businessmen, was not, as has been so often and so mistakenly implied, a commitment to competition. It was rather a celebration of the fruits of such competition: bigness, monopoly, and trusts. The fittest firms and businessmen had survived because they had bested, then eliminated, their competition. This was evolutionary progress in its purest form.

There had appeared on the horizon a new political party, the People's Party or Populists, which had as its raison d'être bringing into the political arena agrarian demands for a decentralized (and therefore inflationary) banking system, tighter antitrust legislation, and the free coinage of silver. The Populists, in their first election, in 1892, had

When the agrarian activists who had already formed their own Populist Party took over the Democratic Party and nominated William Jennings Bryan of Nebraska on a free silver platform, the die was cast. Bryan-and the Democratic platform-made it clear that, if elected, he intended to extend the political realm to encompass economic policy making that had once been excluded from it: "We say in our platform we believe that the right to coin and issue money is a function of government." The platform also made explicit the Bryan Democrats' intention to enlarge "the powers of the Interstate Commerce Commission" and provide for regulation of the "railroads as will protect the people from robbery and oppression." There were also planks denouncing Republican tariff policy for enriching "the few at the expense of the many" and pledging reform.

The nomination of Bryan on such a platform forced the business elites to look past their sectoral and regional differences and unite behind the Republican candidate, William McKinley, who stood for the gold standard...

The class coalition that formed to protect the economy-and future prosperity-from the ravages of silver continued in place even after the defeat of Bryan in 1896. With the exception of the western silver interests, businessmen from every region and every sector remained united not only against free silver but in opposition as well to a decentralized banking system which, they believed, would be structurally biased toward the overextension of credit.

This is not the place to discuss the movement for banking reform in any detail. Suffice it to say that no mobilization of business elites had ever been as broad or as deep or as persistent as the one assembled in the New York Reform Club's currency committee, the Sound Money Committees attached to city and state Chambers of Commerce, the businessmen's clubs and associations formed to support and fund the McKinley campaign, and the National Sound Money League, which was chartered in 1896 to carry on the campaign "for national honor and sound money" after McKinley's victory.

The class mobilization that occurred around the defense of the gold standard was critically important because it cemented the political strategy that would carry the business elites into the Progressive Era and the twentieth century. The business elites had discovered that the best way to protect the economic realm from political interference was to circumscribe democracy.

The business elites had been able to turn back the Populist threat by outsized funding of their candidates and their messages and, as important, by launching a preemptive ideological attack on the notion, so central to the Populists, that in a democracy, the people, through their elected representatives, had not only the right but the obligation to determine economic and monetary policies. The economic realm, as Herbert Spencer, and before him Adam Smith, had taught the businessmen, and the businessmen now attempted to teach the nation, was self-regulating and self-correcting. It had to be left alone to obey its own evolutionary laws, not those of the politicians. Democracy had its limits, beyond which voters and their elected representatives dared not trespass
lest economic calamity befall the nation.

Louis Brandeis
[Banking is] the privilege of taking the golden eggs laid by somebody else's goose.

Mark Twain

I think I can say with pride that we have legislators [U.S. Congress] that bring higher prices than anywhere in the world.

Theodore Roosevelt

Of all the forms of tyranny the least attractive and the most vulgar is the tyranny of mere wealth, the tyranny of a plutocracy.

Ruling America

Home Page