wealth defense and the complici1y of liberal democracy

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quil, stable, cooperative, or based on trust and law.3 Property and wealth regimes ...... those who cannot bear it to those who can" (quoted in Pollack. 2013, p. ... lock v. Farmers' Loan and Trust Company was heard. And in May 1895 the Court ...
Jeffrey A. Winters, “Wealth Defense and the Complicity of Liberal Democracy,” in Wealth, by Jack Knight and Melissa Schwartzberg, eds., NOMOS LVIII, a special issue of the American Society for Political and Legal Philosophy. NYU Press, 2017, pp. 158-225.

5 WEALTH DEFENSE AND THE COMPLICI1Y OF LIBERAL DEMOCRACY JEFFREY A. WINTERS

INTRODUCTIO N

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 I 993). 158

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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 selfbalancing 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 politica l 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, digitalinformational) 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 chum, 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

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Percent of Countries "Not Free" (Freedom House} 50% 45%

40% 35% 30% 25% 20% 15%

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FIGURE 5. 1. Percentage of Countries "Not Free." Time series data are from Freedom House and calculations by the author.

open to include non propertied 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

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1% owns 43% of wealth

66%

owns 0% of wealth

Net Worth of Global Population (adults) Comparison of Global and US Wealth Pyramids, 2012 . Net worth of global population (adults) .

FIGURE 5.2(A).



1% owns 40% of wealth 9% 35%

of wealth 40% owns 25%

of wealth

50%

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Net Worth of U.S. Population (adults) FIGURE 5.2(B).

Comparison of Global and US Wealth Pyramids, 2012 . Net worth of US population (adults).

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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 n et 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

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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 prob-

lems 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

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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 nonrich of their grand scale (Page, Bartels, and Seawright 2013) . This becomes especially significant in democracies. Although the ultrarich 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 exte nt 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

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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 WEAL TH 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

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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

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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."

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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 preindustrial 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 g::-oup. 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

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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

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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, longdistance and impersonal investment and exchange, accumulation,

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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 prnctices that give rise to institutional structures.

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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,

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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

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wielder of force" (2000, p. 718) .25 No display of conforming behavior is more important to modern wealth defe nse 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 donatarios in Brazil provides insights into the penultimate step in that metamorphosis-th e 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 donatarios 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 donatarios 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 donataria of Sao Vicente in the present state of Sao Paulo. "The

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main solution of the labor problem in the colony of Sao 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 oth er tribes, and hired enough soldiers to keep the upper hand." The donataria of Duarte Coelho, another successful "forceusing, 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.

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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 D EFENSE 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 1266• 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

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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.

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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 semisovereign 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

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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

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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.

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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-l 780s, 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

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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]

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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) targe ted 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

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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 papermoney 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

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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 tum 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

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population will of necessity increase the proportion of those who will labour under all the hardships oflife, & 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 .

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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 ofjust 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

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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 redistributionwhich 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

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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 eighteen th 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 socalled 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 ofJohn D.

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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 th e 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

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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 201 la, p . 227)

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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 Be nton 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 onehalf of 1 % of Americans. This victory marked the single greatest

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democracy-driven setback American oligarchs had endured since the passage of paper money laws more than 125 years earlier."0 The Weifare 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. 5 1 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

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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

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Incomes of Ultra Rich Rise Sharply

Change in Real Household Income since

7.0

1915-1920

5.0

1915-1920

1955

1970

1980

1990

2007

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.

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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 th ese 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 leve ls un ti! 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 leve ls 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 producedwhich 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.

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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 laborcheap 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 wealththreatening 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

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Income Tax Rates for Joint Filers in 1958 and in 2009 (brackets in 2009$) 100~

fi

$100 Billion in Tax Savings in 2007

0 500,000

l ,000,000

1,500,000

2,000,000

2,500,000

3,000,000

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Taxable Income (2009$)

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 201 3. 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.

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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.l % 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.

Wealth 35% of Taxes

Bottom 50% Has Zero or Negative Wealth (Debt)

Population

Tax Burden

FIGURE 5.5(A). The Distribution of Wealth and the Share of Tax Burden

in the United States, 2012. Current taxes based on income.

Wealth

If Tax Burden= Wealth Share

Top 0.01% would pay extra $79 B Top 1% would pay extra $136 B Bottom 50% would fill.)@ -$84 8 If Budget Were Balanced (No Deficit) Top 0.01% would pay extra $179 8 Top 1% would pay extra $495 8

Bottom 50% Has Zero or Negative Wealth !Debt)

Population

Tax Burden

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.

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Asset Leg;i,bility, Offshore Secrecy Locations, and Cornplexity 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 Uust 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

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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 ultrarich 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

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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 fortunesthat 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

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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 rainbowreflective 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 legi timize 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

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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

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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 wealthdefense 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

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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

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wealthiest citizens were expropriated, driven abroad, or killed. In every case, ultra-wealthy oligarchs have re-emerged at a stu nning 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 hyperenrichment 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 in creased equally dramatically. "When J.P. Morgan died in 1914, leaving an estate of some $80 million [$1.86 billion in 2014 do!-

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Jars]," 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 cen timillionaire 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 201 la, 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

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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 micromacro distinction . Betzig (2014, p. 80) focuses on a strange interval in the history of human domination during which regimes of hyperintensive control ove r 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 statusstratified 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.

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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 ch iefships 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 (201 la, 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. 24Lonsdale (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."

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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 outsource 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-

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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.

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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

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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 Un ion; 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 fo lly" (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).

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47 This section draws liberally on Winters 201 la, 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 vo te ." 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 201 la, 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 2011 b (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." H e 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

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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. Tuckerwho 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 Ranter'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 Sec 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

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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).

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