Kevin Phillips gained a reputation as a political prophet in 1969 when he published The Emerging Republican Majority. An advisor to President Richard Nixon, Phillips analyzed voting patterns around the United States and argued that the period of Democratic dominance was drawing to an end and that the nation was due for a spell of conservative Republican control. Over the course of the following two decades, however, Phillips became increasingly critical of the consequences of conservative government. In particular, he was uneasy about the growing economic inequality that he believed characterized the 1980’s during the administrations of Presidents Ronald Reagan and George H. W. Bush. In 1990, while the first President Bush was still in office, Phillips published The Politics of Rich and Poor: Wealth and the American Electorate in the Reagan Aftermath. He argued that the economic policies of President Reagan and his successor had further enriched a high-income minority while downgrading standards of living for most Americans in middle and lower income brackets. Phillips began arguing for the development of an industrial policy to direct the American economy and for tax hikes on the most affluent citizens.
Wealth and Democracy can be seen as a sequel to The Politics of Rich and Poor. In this new book, Phillips attempts to support his argument by developing its historical and theoretical bases.Wealth and Democracy has three interrelated themes. First, it is a history of the accumulation of wealth in the United States that argues that great fortunes have always been built on cooperation between government and business, not on free trade or hands-off policies by government. Second, it suggests that there is a cyclical pattern to economic history, with the accumulation of wealth leading to economies based on financial speculation rather than on the production of goods and services. Third, it maintains that the United States should pursue an industrial policy and that this policy should emphasize the interests of labor over the interests of capital.
Phillips begins by tracing American fortunes through the eighteenth and nineteenth centuries. These fortunes, he argues, were subsidized by governmental activities. Many of the rich, such as the politically connected Robert Morris (1745-1815), became America’s first war profiteers through government contracts and by operating privateer ships during the American war for independence. In the young United States, the economic policies of Alexander Hamilton (1755-1804) tended to favor the wealthy speculators, who had bought up federal and state certificates of debt at cut rates, and to penalize average Americans, who paid governmental debts through taxes on goods, known as excise taxes. The Hamiltonian policy of maintaining a central bank, the Bank of the United States, contributed to governmental support of wealthy financial speculators. The Civil War provided the next big spur to the growth of wealth, once again through government spending on war-related goods. Government support for the railroads helped to create the great fortunes of the nineteenth century.
The twentieth century, Phillips argues, saw both economic booms and political reactions against the concentration of wealth. The great fortunes of the first decade met with the first efforts at political control of the rich. The populism of the nineteenth century gave way to the progressivism of the early twentieth and the progressives, particularly during the administration of President Theodore Roosevelt from 1901 to1909, tried to bring the market under control. Wealth gained the upper hand again after World War I, resulting in the speculative boom of the 1920’s. After excessive speculation led to a crash, the most successful efforts at governmental direction of the economy were undertaken during the administration of President Franklin D. Roosevelt from 1933 to 1945. This resulted in a rather long period of relative egalitarianism that was shaken only by later speculative booms in the 1980’s and 1990’s.
Broadening his view, Phillips maintains that American economic history has been following a cycle found in the histories of earlier great powers. The amassing of great wealth leads to financialization, financial speculation as an economic activity that replaces the actual production of goods. As investment itself becomes the center of interest, larger segments of a nation’s population are drawn into investment, resulting in manias and economic bubbles. Temporarily, many middle income people seem to benefit by bubbles, but these inevitably burst, leaving wealth more concentrated among those at the top. Speculation also ultimately leads to economic decline, since the finances absorb much of a nation’s investment and production of goods is left to other nations. Phillips offers the cases of Spain in the...
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