If Only: the Founders and Income Inequality

Bill Chapman called my attention to an interesting Newsweek piece by David Cay Johnston entitled Why Thomas Jefferson Favored Profit Sharing, reporting on new research by Joseph R. Blasi and Douglas L. Kruse of Rutgers and Richard B. Freeman of Harvard, as well as on Johnston’s own research, to describe

… the future envisioned by the framers more than two centuries ago – an America in which every worker is a capitalist.

Possibly unsurprisingly, I question that conclusion about the framers’ vision. Some back-and-forth on Twitter leads me to clarify here my dissent from Johnston’s article.

This is the situation — classic, at this point, for me — in which I might agree with an author about the kinds of things we ought to be doing now do encourage far greater economic equality but disagree that there’s any realistic hope of finding support for those things in the thinking of our founders. That’s in part because I recoil, and possibly too hard by now, from what has come to seem to me a compulsive troping by some progressives toward the kinds of American-essentialist, founder-invoking gestures that the right wing routinely uses, possibly to the greater good of their propaganda, and always to the detriment of realism about our history as a people.

The same damage is done by liberals, and in the liberal case I think it’s worse. For while it might be nice to believe, I guess, that if we could only get back to the vision bequeathed us by our founders, progressive values would prevail and the greater good be achieved, that’s way too simple, and too simple in a way that I think undermines both our understanding of where we come from and any hope we may have for where we might be able to go. As usual, the only hope I see lies in complication.

The Johnston piece opens by quoting Washington, Adams, Madison, and Hamilton on such things as the importance of “equal distribution of property” (Washington); fear of “the rich and the proud” destroying “all the equality and liberty” (Adams); a hope that government would defeat “an immoderate, and especially unmerited, accumulation of riches” (Madison); and expectations of abuse “whenever a discretionary power is lodged in any set of men over the property of their neighbors” (Hamilton). These are familiar remarks. In the quote battles waged so hard online, they can always be countered with opposing thoughts from the same men, which can in turn always be countered by quotes more like these, and so on.

Johnston, however, uses this collection of quotations to assert that the equality thing is the one thing the warring founders agreed on. Context is everything, and I’d suggest that these quotations instead indicate that the founders all participated in what was then a familiar, even reflexive Whiggish rhetoric, appealing to an ideal of rough equality of wealth as a key to stability. Such ideas are loose enough in any event, and in the case of some of the founders’ visions for America, fantastical enough, to have permitted these men lifestyles of supreme fabulousness while inspiring them to oppose at every turn the efforts of organized labor (yes, it existed then) to gain access to political power and use it to equalize wealth via representative government.

To the extent that some of the founders did sometimes entertain dreams of social equality — well, to the extent that Jefferson did (and mostly about equality in France!) — it seems ludicrous to me to rope Washington and Hamilton into any such happy visions. They would not have played.

And the Adams quote comes from his very cogent and subtle rationale for creating an upper house in the state legislatures, in order, yes, to better constrain the excesses of the rich, but also to let the upper house serve as a check on the more broadly representative lower house. As is so often the case with these Whig-inspired ideas about equality, Adams also defends barring the unpropertied from the franchise.

For the rough equality of property that these men sometimes — and not always — hymned often refers to rough equality among those with property. Leaving aside for a moment the scabrous contradictions espoused in all this equality talk by the slaveowners Jefferson, Madison, and Washington, we should face the stark fact that Adams’s and Hamilton’s visions, for example, do not embrace the enormous numbers of tenants, sharecroppers, and landless laborers that all of the founders — and too many modern writers — blur out of the rosy founding picture, even as the famous founders’ enterprises depended heavily on that source of labor.

Hamilton, at least, made few bones about this. I think he would have found it funny (or maybe just embarrassing) to be described in 2014 as imagining all workers becoming capitalists. He had a vision of the relationship of labor, government, and capital more like Henry Ford’s.

Anyway, regardless of what the founders on occasion said, it’s what they did in forming the nation that matters to me, and as I’ve discussed ad nauseam all over this blog and in my books, what I think they did is form a nation explicitly designed to defeat democratic approaches to finance, taken up by populists of the day, which the founders rightly or wrongly saw as tending to demolish economic hierarchies on which they believed liberty depended. To me, that’s really the one thing they all agreed on.

After lining up quotations that may sound, at first listen, encouraging for a founding vision of equality, the Jonnston piece then delves into a very interesting proposal Jefferson made, as Secretary of State, involving a government subsidy for the fishing industry, in which the bulk of the money would go not to rich ship owners but to the ships’ “sharesmen” — those workers with an interest in the profits. I don’t think Johnston can be suggesting that profit-sharing was original with Jefferson; the sharesman approach was of long standing in the fishing business. He’s saying TJ did close research and discovered that profit-sharing was more efficient than wage labor. That makes sense: the efficiency was probably real (that’s why fishing had made use of it for so long); TJ hated wage labor (or at least landless urban wage laborers); and the profit-sharing thing would play into his romance (often an overbearingly patronizing one) with those yeoman farmers down the hill.

Matt Stoller on his new blog Observations on Credit and Surveillance has a shrewd take on the matter:

Jefferson’s main concerns were not equity, the Constitution, or the health of an American industry. He was concerned about national security, oil (whale oil), and international competition. . . . one could even argue this was a very early US government subsidy to the oil industry. Whale oil, but still, this was energy policy. . . . In this case, the US government wanted to make sure it had well-trained sailors, so it provided a subsidy to the fishing industry and mandated that the sailors be well-paid.

On Twitter Johnston dissented from Stoller’s “well paid,” since the workers weren’t paid wages but participated in profits; and from my crack that the policy sounds like the national security state as a jobs program.

But I think what’s most important about the Jefferson policy — and I think this is what Johnston and the authors whose work he’s reporting are saying — is that it was a very early government subsidy, and it was dedicated not to shoring up and bailing out fatcats but to aiding workers in gaining the tools of economic development.

That’s indeed very smart and very interesting and speaks to TJ’s intelligence, diligence, and practicality, as well as to the intelligence (if momentarily) of Congress. If left to speak for itself, it might even offer us some inspiration.

But I must question hanging a broad founding vision of combating income inequality through government action on this one policy (indeed, an anomalous one — not the worker profit-sharing but the government subsidy for worker profit-sharing), and then blend it with out-of-context quotes that rope everybody from Washington to Adams to Hamilton — of all people! — into a unified vision, supposedly common among founding elites, in favor of wealth equality in America. That conclusion seems way overdetermined, [UPDATE: Not only overdetermined but actually ruining what might have been a nice point by smothering it in wishful thinking], in the characteristic mode of progressives’ claims on the founding.

These dreams about the founding always over-rely on that slipperiest of founders, Jefferson. And if TJ did indulge in dreams of an America with all workers turned owners, that was at the expense of any hardnosed realism on his part about the effects of many his own endeavors, as well as of any sympathy for ordinary people’s own ideas about how they might advance.

We, too, might advance if we didn’t keep having to imagine our founders encouraging us.

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8 thoughts on “If Only: the Founders and Income Inequality

  1. Johnson writes well of the things he knows well.

    However, myth creation and historical reformulation of myths for rhetorical purposes are things he should stay away from.

  2. As Hogeland points out (and Herman Melville confirms), fisherman have commonly worked for “shares.” As did primitive hunters. As did naval crews who captured merchant vessels until the 20th century. As did pirates plying their trade.This tradition continues today with Somali pirates, who reportedly use time cards to verify their individual roles (and thus share of ransom) for seizing ships.

    What is not explained here is how the Founders’ subsidy to a fishing fleet would work, irrespective of its mandated five-eighths (62.5%) share of the catch going to the fishermen. As the fishermen already worked for shares of the catch instead of wages, they also shared in the risk of their time spent fishing, but were not charged for their room and board on ship regardless of the value of the catch. It was the investors who built or leased the vessel and supplied it with equipment, food and water and who took the only monetary risk.

    It stands to reason that a government subsidy to the fishing expedition could only have gone to the owners, not to the crew. The crew had no monetary capital invested in the fishing expedition in the first place.

    So are we to believe it would have been equitable “profit sharing” when the owners of the vessel risk less capital due to subsidy, but the crew (including the hired captain and officers) still risk their lives and spend the same amount of time and effort in the enterprise as they would have done without the subsidy? By this logic, Thomas Jefferson also would have similarly supported a government subsidy for purchase of more farm land if only he agreed to let his slaves eat a bit more of its produce before he sold the rest for gain (and this is assuming his forced labor didn’t already eat five-eights of the crop in the first place.)

    The information given says owner/investors were guaranteed a 37.5% share of gain in an admittedly risky enterprise, but would be subsidized for doing so.

    In this light, subsidized “profit-sharing” is a sham. The owners get their increased real capital assets subsidized at the “expense” of having only a fraction of gains “trickled down” upon the actual producers of those gains — who in the case of the 18th century fishermen — were literally putting their lives on the line for what quite often were the “absentee landlords” of the vessels they served.

    ExxonMobil has a similar deal today, but just not on as favorable terms as those our aristocratic, anti-democratic, but purportedly equality-loving Founders proposed.

    • Thanks for this compelling comment. My natural skepticism about any sort of genuinely “progressive” subsidy coming from Jefferson led me on a hasty hunt for evidence that his scheme was really a benefit to owners, but the fact is, I don’t have as firm a grasp on the economics involved as I’d like, so I got nowhere on that yesterday. These remarks raise important questions.

  3. Another great post, Bill. Although I have not read any of Johnston’s books, I have read a couple of articles by him and support his perspective. His expertise, from what I have seen, is taxation and its effects. The founding era seems to be outside his bailiwick and, on that topic I always defer to Bill.

    Bill, did you receive my email re: “Founding Finance”?

    John
    Louisville, KY

  4. Hello Bill,

    Do you find the high entry price to legal recreational marijuana sellers analogous the pricing out of small whiskey producers?

    I do, and would like a more studied perspective on this issue from you if you find the question relevant.

    Thanks either way.

    Glenn

  5. Sorry to post here but I couldn’t find an email address.

    This looks like a replay of Hamilton’s actions on whiskey.

    http://www.chicagotribune.com/news/local/ct-medical-marijuana-rules-met-20140211,0,1530418.story

    Illinois regulators have come out with proposed requirements for opening medical marijuana grow centers and dispensaries — and they come with a steep price tag that advocates say could be costly for consumers.

    For dispensaries to sell the pot, state officials proposed a $5,000 nonrefundable application fee, proof of $400,000 in assets, a $30,000 permit fee and a yearly permit renewal fee of $25,000.

    For cultivation centers, the Department of Agriculture proposed a $25,000 nonrefundable application fee, $250,000 in liquid assets, payment of $200,000 upon approval of a permit and a renewal fee of $100,000.

    The costs are sure to eliminate a lot of potential entrepreneurs, said Joseph Friedman, a pharmacist from Lincolnshire who hopes to open a dispensary.

    “Probably 50 percent of the wannabes are now out,” he said. “This is going to bring out just the serious players who are well-capitalized and well-credentialed.”

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