The discovery of what we have known all the time is always among the more agreeable mental exercises. The books which are the excuse for this review are good examples of this genre. They both are what may be called without derogation good economic journalism. They are both well documented, and the documentation consists either of secondary sources or the public press. Neither of them contains, therefore, any radically new knowledge, each of them is in its own way a successful attempt to bring what we already know in reasonably succinct or entertaining form to the attention of a wider public.

Ferdinand Lundberg’s book The Rich and the Super-Rich, looks properly affluent. Its dust cover simulates a share of stock. It is so large and thick, and has been so expensively advertised, that one is a little disappointed to find that it is not bound in plush. The author has expanded and brought up to date an earlier work, America’s Sixty Families, published in 1937. The scene Lundberg describes has changed surprisingly little in those thirty years; pretty much the same families are still there, with everybody a generation older. There has also been surprisingly little improvement in the amount of information we have about the very rich, in spite of a number of important scholarly studies in the interim. For much of his data Mr. Lundberg has had to rely on the old TNEC studies of the 1930s, which was about the last time anybody seriously asked the rich how rich they were. Indeed, our ignorance about the distribution of assets in the United States is either a statistical disgrace or a remarkable tribute to one of Mr. Lundberg’s major themes, which is that the rich are more powerful than we think.

Mr. Lundberg has a number of themes. Nevertheless, one of the most interesting things about the book is Mr. Lundberg himself, who emerges from these opulent pages as a dramatic character, a salty but sophisticated cracker-barrel philosopher, with a strong distaste for cracker barrels—to which, nevertheless, he refers at least a dozen times—with a wit reminiscent of Mencken, which, however, trembles too often on the edge of the jaundiced. However, although the book is itself a huge cracker barrel of information often arranged at random, Mr. Lundberg has some important things to say and a great deal of what he has to say is probably true.

LUNDBERG BELIEVES, as seems obvious, that the distribution of ownership of the physical property in American society is extremely unequal, that 90 percent of Americans own practically nothing, except their persons and a little household capital; that among the 10 percent who have financial assets, the top 1 percent owns more than one-fourth of the total, and that at the very top are some very, very, rich people indeed. Moreover, the available evidence shows that this situation has not changed much in the last generation in spite of depressions, taxes, and wars, and while many people have risen into modest affluence, there has not been much change at the top. Since the beginning of this century when the Fords arrived at the top, there have been no new large fortunes. The automobile and the oil fortunes that followed Ford were the last really great bonanzas, and the patterns of ownership in these industries were largely set by the 1930s.

As a national consequence, according to Mr. Lundberg, we now have in the United States something like a hereditary aristocracy of wealth, in spite of the progressive income taxes and estate and inheritance taxes. The rich not only hang on to their wealth but manage to transmit it to the next generation either by tax avoidance or by setting up foundations which they still control. Mr. Lundberg devotes much of the book to exploring how this trick is managed, and his chapters on the great tax swindle and on the tax-exempt foundations are admirable.

Finally, the rich, and especially the super-rich, form what Mr. Lundberg calls a “moneybund” which in fact exercises not only a great deal of economic power but political power as well. This point is not wholly demonstrated despite Mr. Lundberg’s abundant evidence. Indeed, in his wilder moments Lundberg compares the United States to a banana republic dominated by a small, closely knit, strongly interrelated group of hereditary barons who really run the country. Here he crosses swords, often quite entertainingly, with two somewhat related but opposing views. The late C. Wright Mills believed there is a power elite which is not confined to the rich or the super-rich but includes all sorts of exercisers of power in political and military life. On the other hand, Burnham and Berle and Means in their younger days believed that the corporate managers really run the country and that the owners of the equity are not only absent and uninterested, but are most of them sick old ladies without much interest in anything.

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Lundberg makes a fairly convincing case against both these arguments, mainly on the grounds that the rich, especially the very rich, as a class and especially as members of extended families, are very much aware both of their power and their interests and that not only does their wealth give them power but at crucial moments this power is exercised. He is not suggesting of course that the “moneybund” is a literal conspiracy, but there is much evidence that it represents an extremely powerful subculture which is largely self-perpetuating. Incidentally, an astonishing statistic of 1958 is that in estates of ten million dollars and more, not only do women predominate (1,658 women as against 335 men) but the average age of the women is only forty by comparison with the men (fifty-eight), which suggests at any rate interesting speculations about the marriage and widowhood patterns of the rich. Nevertheless, it makes sense to suppose that the extended family unit among the rich has far more power and intelligence than any individual member of it; and who knows, in another two hundred years, barring a revolution, there may be as many influential Fords as there are now Du Ponts.

Mr. Lundberg has obviously had a long love-hate affair with the rich, especially with the very rich, and he admiringly quotes F. Scott Fitzgerald’s famous remark, “They are different,” at the beginning of his book. The chapter on the culture of the rich labeled the “Divine Spark” again tells us nothing that we did not know before. There is little to add to Hilaire Belloc’s verses:

The rich arrived in pairs
And also in Rolls Royces.
They talked of their affairs
In loud and strident voices
The husbands and the wives
Of this select society
Lead independent lives
Of infinite variety.

Lundberg would strongly favor an aristocratic-radical-intellectual-political science. He has a strong urge toward neologisms, most of which I predict will not survive. People with power of any kind he calls “pols” divided into “finpols” having financial power and “pubpols” having public political power, churchpols, corppols and so on. He sees quite rightly that the rich only have certain kinds of power, but he argues that because of the boobishness (Mencken again) of the poor and “booboisie,” even in a supposedly democratic society which he calls a system of elective despotism, the pubpols will really be bossed around by the finpols—to which one can only reply that sometimes they are and sometimes they aren’t.

Thus the fact that the pubpols’ war in Vietnam seems to be just as unpopular on Wall Street as it is on the campusessuggests that the activities of the pubpols, and especially the milpols, is to a large extent independent of the wishes of the finpols or the thinkpols. Roosevelt’s election in 1936, in spite of the united opposition of the financial community and the press, suggests that at least in crises, the little voter can be king after all. On the other hand, there is some evidence that the rich are not impotent, and the tenderness of Congress toward them is notorious.

BEN SELIGMAN’S BOOK on Permanent Poverty provides a useful contrast to Lundberg’s book. It looks pinched, and it has a picture of a prosperous rat on the dust cover. What Seligman means by poverty is revealed by his first sentence: “Poverty in the modern era began to reveal itself in the slums of the industrial cities.” One is almost tempted to call this, following the language of Lundberg, “super-poverty” as against the ordinary poverty and destitution of slaves in most civilized societies, the beggar and even the modern Haitian or Asian peasant. The poverty line as we have defined it in this country is about $3,000 per year for a family of four with wide variations up or down from this level. This contrasts with average per capita incomes in the poor countries of $100. Thus, a poor person in this country would be regarded as pretty rich in an Indian village.

This is not to deny of course that the problem of poverty is very real in the United States or that there is no urgent need to do something about it. It is, however, a problem of quite a different character from the poverty of the poor countries. It is by no means clear whether this makes the problem easier to solve. It may, indeed, be insoluble, for the cheerful reason that the richer we get and the richer the American poor get the more their levels of aspiration increase. In this country poverty is more a matter of the difference between aspiration and achievement than it is a matter of living on the margins of physical subsistence. There is a great difference between poverty as we experience it in this country and destitution as it is experienced especially in the Tropics. We do not really have anything in this country like the homeless millions in Indian cities who live on the streets. It is quite probable that an attack on poverty in this country will raise levels of aspiration faster than it raises income, so that the perception of poverty may even increase. To some extent this is what has been happening in the last generation. This is not to deny that there are still pockets of misery in this country in which people are severely deprived or hungry, if not starving, and have not been advancing.

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Seligman surveys the various pockets and subcultures of poverty in the United States—the Negro, the Appalachian, the ageing, the fatherless family, and so on. He points out the unfavorable position of the poor in regard to the law, and he concludes the book with a devastating account of the War on Poverty and shows how easily this has been perverted into a scheme for filling the pockets of city bosses or even well-meaning middleclass organizers. If his book shares with Lundberg’s a common theme it is, first, that the power of the rich is able to pervert the political system in their favor and, second, that the weakness of the poor enables the political system always to discriminate against them, even in the case of policies which are for their ostensible benefit. Regrettably, to each of these propositions I must assent.

Both books, perhaps because they bring together in readable form the present state of knowledge about these subjects, show how little we really know about either the rich or the poor. Part of our ignorance goes back to a serious defect in economic thought—we do not have an adequate formal model of the dynamics of the distribution of wealth and poverty of all kinds. We know in a general way, of course, that some social institutions, such as primogeniture, regressive taxes, easy transfer of wealth between the generations, intermarriage among the rich, low birth rates among the rich, and so on, lead to concentration of wealth, and that opposite social circumstances—progressive taxation and high inheritance taxes without loopholes, low rates of interest, high birthrates among the rich and a good deal of intermarrying between the rich and the poor—will lessen the concentration of wealth. Models, however, are not explicit enough to enable us even to investigate most of the crucial variables. We are singularly deficient also in studies comparing the situations of the rich and poor in different cultures and societies. Hence we cannot have any intelligent social policy even if we wanted to, because we do not have the available knowledge. Under these circumstances it is not surprising that both studies, depending as they do on the present state of scholarship, should seem, in their actual proposals for social policy, somewhat diffuse and unsatisfactory.

EVEN IF WE HAD excellent models and the kind of data on assets that we now have on incomes, this in itself would of course be no guarantee of adequate social policy. For this is related to another gap in our social theory, which is the theory of the dynamics of changes of power. One thing on which we can all agree is that the powerful have power. What we do not understand is how power is sometimes eroded, sometimes built up, even without the dramatic changes of revolution. The power to change power structures is obviously among the crucial factors of the dynamics of society, yet we really know very little about it, and it is hard to identify even where it resides. In all societies existing power structures have a way of diverting attacks on themselves into channels which really do not overly threaten the existing order. Thus, even the Great Depression and the New Deal which followed it did not really change the power structure of American society. The New Deal, indeed, apart from one or two positive achievements such as Social Security, must be written off as a failure. It did not solve the main problem of the period, which was unemployment. Similarly the current poverty program has not seriously challenged the power of the city bosses or our cancerous war industry. Because of this big hole in our social theory a great deal of semi-moralistic writing on the subject of power tends to sound cynical, as both Lundberg and Seligman occasionally do, or tends to turn into mere bellyaching.

The problem of the rich and the problem of the poor, therefore, ultimately resolve themselves into a single problem: can we set up institutions in society which will create a more equitable distribution of economic well-being? If we are to do this we must first develop much better measures of personal or family economic well-being than we now have. Professor James N. Morgan’s article in the May 1968 issue of the American Economic Review, “The Supply of Effort, the Measurement of Well-Being, and the Dynamics of Improvement,” is an important first step in this direction. It is a serious weakness in Lundberg’s analysis, for instance, that he confines himself entirely to non-human capital, corporate assets, physical property, etc. But one of the most striking phenomena of the last thirty years has been the enormous increase in the value of human capital, that is, the capitalized value of a man’s expected net labor income over the course of his life. One result has been that the distribution of income is much less unequal than the distribution of financial assets. This does not invalidate the point that financial assets create a permanent power position in a way that human capital and income from labor do not. What kind of scenario, for instance, could we formulate for the next ten or twenty years which would leave us, at the end, with a genuine tax reform in American society and which would give us a steady reduction of inequality? Putting the question in this form may make the answer difficult to perceive, but if there is to be any answer at all it is a question that must be asked explicitly and neither of these two books even begins to ask it.

Part of the problem here is that we have made little advance in the study of the rhetoric of political action. It may well be, for instance, that what we need more than anything else to solve the problem of poverty is a simple measure of equality or inequality which might have the same kind of politically symbolic impact that the concept of parity had in our agricultural policy. Agricultural discontent found practically no political expression in this country until the parity index, which is a measure of the terms of trade of the agricultural sector, was invented. On the other hand, of course, equality is by no means the whole problem. Indeed, a general justification of the failure of the United States to have an equality policy rests in the implicit assumption that we can get rid of poverty without getting rid of riches, that the simple process of general economic development will dribble down to the poor and, eventually at least, make them all middle class.

This in a sense is the philosophy underlying the War on Poverty. Yet we simply do not know enough about the dynamics of our society to know whether this all-important proposition is true. Indeed, one has the suspicion that it may not be true, and that there is something almost inherent in the process of economic development which prevents the benefits of development from reaching down into the lowest economic strata of society, even if does not necessarily involve siphoning off most of the benefits of economic development by the rich. The problem of who benefits from a given increase in the gross national product seems to be almost a forbidden subject to our economists, imbued as we are with the delightful myth that everybody can get richer together, and that hence social conflict is meaningless. If these books, by their exposure of the very deficiencies of the present state of our knowledge, can help toward setting up a genuine research program to improve it, they will not have been written in vain.

This Issue

September 12, 1968