A recent article in Al Jazeera’s English website discussed what it called the “cash hoarding crisis” that plagues the American economic scene today. Wealthy corporations have amassed, and continue to withhold from circulation, huge amounts of capital that might otherwise be used to help the economy. According to the article, corporations now possess liquid assets equivalent to all the money the federal government spent in 2012, 2013, and part of 2011. A related and frequent topic of discussion is the widening and apparently unbridgeable gap that now exists between the rich and poor in America; income inequalities are the largest they have even been, and continue to grow. Even worse, this hoarded wealth buys unprecedented influence over the American political system. With this background, it is useful to reflect on how such lopsided situations have been resolved historically. It is a decidedly mixed picture.
With all due respect to the America’s Declaration of Independence and the French Revolution’s “Declaration of the Rights of Man”, man is everywhere born unfree and unequal. Heredity, environment, and innate ability all combine to create disparities in achievement among men. Some men, by virtue of superior ability, heredity, luck, social position, or inheritance, will always be able to amass more money and influence than others. Nature is aristocratic or oligarchic, not communistic.
The increasing concentration of capital at the top of society is an inevitable trend in social development. To an extent, it is also a favorable one. The labors of the rich banker or businessman does fulfill a creative function in history: he finances the free flow of goods and services, awakens the creativity of artists and scholars he supports, and contributes to the abundance of consumer goods valued by all. Without the rich banking families of Renaissance Italy (e.g., the Medici) there would have been no Michelangelo or Da Vinci; and without the J.P. Morgans of America there would have been none of the large endowments for libraries, museums, or artistic grants that have made America the envy of the world in this respect. Business is the lifeblood of a healthy society.
Solon, newly appointed archon of Athens, argues for reform before the Athenian nobles
But this concentration of wealth at the top comes with a price. Left unchecked, wealth and the power it readily buys can act as an obstacle to social change. The rich, left secure in their mansions and gated communities, become increasingly isolated from, and unsympathetic towards, the plight of the poor and dispossessed. Gross inequality destabilizes society. Resentments simmer, social injustice grows, and meaningful reforms are blocked at every turn by the forces of privilege and influence. Many historical examples illustrate this. I realize that historical examples are always hazardous, since history is so rich in detail that almost any example can be used to prove any point; and the historian, even by his choice of adjectives, can betray his secret prejudices. Yet we proceed.
According to Plutarch, in Athens in 594 B.C. the income disparity between rich and poor was so great that social stability began to be threatened. The poor, weighed down with debt and taxes, began to talk openly of revolt and violence. Corrupt courts and oligarchs used every ruse of legal legerdemain and statutory slight-of-hand to keep them down, and to prevent meaningful social reforms from being implemented. By good fortune, a rich businessman named Solon was elected to the archonship of Athens. He was the Franklin D. Roosevelt of his time: although of aristocratic lineage, he recognized that violence and chaos would engulf the state if the abuses of the rich were not checked.
Solon gave debt relief by devaluing the currency, abolishing debtors’ prison, and reforming the loan system. He reformed the income tax structure by making the rich pay at a rate twelve times that of the poor, made the courts more fair and open, and provided that the sons of men who had died in Athenian wars would be educated at government expense. Although the rich wanted his head, and screamed bloody murder at Solon’s confiscatory policies, he held firm. It is generally conceded today that his reforms averted social violence in Athens. He was the type of man who only comes along once in a century.
The ancient Roman Republic took a different course, and the result was two generations of violence and civil war. Although the Romans have never been equaled in the art of government, they failed in the task of reforming their republic to meet the challenge of economic expansion. In Rome, the expansion of the republic’s power around the Mediterranean brought fantastic riches and influence to the ruling classes. Italy’s great landed estates—the latifundia—had generated a class of super-rich oligarchs that owned the Senate and treated it as their private playground. The concentration of wealth, and the misery of the lower classes, grew unchecked year by year, until finally a brave tribune named Tiberius Gracchus determined to confront to oligarchs and save the republic from revolution.
Tiberius submitted legislation that would have capped land ownership to 333 acres per person; he proposed to reform the corrupt courts; and like Solon he would have provided debt relief in the form of debt cancellation or modification.
Tiberius Gracchus appeals for reforms before the Roman Senate
The Senate refused. Tiberius appealed directly to the people in a series of masterful speeches, but the rich incited violence against him, and he was killed in a riot while campaigning for reelection in 133 B.C. His brother Caius tried to continue his legacy, but he too was thwarted by the Senate, and died by his own hand in 121 B.C. In the wake of his death, thousands of Roman supporters of the Gracchus brothers were slain by Senatorial proscription. The Roman Republic was engulfed in a generation of civil violence, with competing strongmen—Catiline, Marius, and finally Julius Caesar—vying for control of the reins of power. In the end, the republic as a viable institution was destroyed, and in its place was an absolute monarchy as the only alternative.
One of the themes of economic history is the alternating concentration and dispersion of wealth in a society. As time progresses, inequalities among men multiply; the wealthy sectors of society aggregate more and more wealth in their hands. This upward concentration of money brings with it a resistance to reform, an unresponsive political system, and a rigged judiciary and legislature. Eventually, this concentrated wealth is redistributed downwards, either by peaceful means (as in America in the 1930s and the 1960s), or by violent means, as in France in 1789, in Germany during the Reformation (when German princes confiscated Church holdings), or in Russia after 1917. The warning is clear.
The martyred Gracchus brothers, Tiberius and Caius
In contemporary America, fabulous wealth has been concentrated in the hands of a few. The public has waited for meaningful reforms to take place from Congress on a number of social issues (health care, defense spending, infrastructure improvement, education, etc.), yet nothing meaningful has happened. Congress is now the plaything of the rich and powerful, a tool of venal special interest groups. The chief executive has been reduced to being a mouthpiece of the moneyed sectors, whose job is only to read platitudes and inanities from the teleprompter.
The student of history watches all this from the sidelines, with a mixture of frustration, apprehension, and fear. People cannot be marginalized, ignored, and kept down forever. Permanent gridlock is not a condition that can exist indefinitely. Unless major changes are made, democracy may become a relic of America’s past, to be replaced by social unrest, violence, or demagogic strongmen promising reform. The outcome is still in doubt.
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