The Founders' Blue Print for Fighting Wealth Disparities

As America slides back into a Gilded Age society and with Republicans and the conservatives on the Supreme Court waging a constant war on the working and middle classes, it is noteworthy that the Founding Fathers recognized that wealth concentrations in the few was not a good thing for the future or the nation's economy.  Perhaps it was their living experience with the wealth inequalities in Great Britain and the deference given to aristocrats, but whatever the motivation, Jefferson, Washington, Hamilton and others sought to strengthen the average American financial, not strip them of benefits and property to aid the few.  A piece in The Daily Beast looks at some of the actions of the Founders that are diametrically opposed to the policies of the GOP.  Here are some highlights:

Current approaches to addressing rising inequality—raising the minimum wage, expanding higher education, increasing the power of unions, widening the national focus on high technology, aiming for a national renaissance in manufacturing—have not shown any evidence of reversing the concentration of income and wealth. There is one potential solution that could appeal to both pro-labor liberals and free-market conservatives, which has its roots in the philosophies of the Founding Fathers, and is already being practiced in parts of the economy today: employee shares in companies. The idea is to make every citizen a capitalist through citizen shares of corporations.  A story from President George Washington points the way.

On February 16, 1792, Washington signed into law a bill from the U.S. Congress that cut taxes for ship owners and sailors in the American cod fishery, in an effort to revive the failing industry. However, the tax cut was conditioned on a broad-based profit sharing arrangement between shipowners and the crews—a centuries-long custom of sharing the profits made from every catch. The legislation was supported by two politicians who typically agreed on very little: Secretary of the Treasury Alexander Hamilton and Secretary of State Thomas Jefferson, who was responsible for negotiating America’s interests in the fisheries.

Hamilton’s Assistant Secretary of the Treasury, Tench Coxe. Coxe supplied Jefferson with evidence from the leading Philadelphia shipper, Joseph Anthony, that the cod ships with profit sharing were more productive than those with fixed wages.  In the end, Washington’s law not only required a written contract between captain and crew to practice broad-based profit sharing as a condition to receive the tax cuts, and it also said that the tax credits would be paid five-eighths to the crew and three-eighths to the shipowners. The credits relieved the sailors and owners of tariffs, essentially tax payments they had to make on supplies for the fishery.  This is the first documented case in American history where the government made citizen shares—a form of inclusive capitalism—a condition for receiving a tax break.

The cod fishery law reflected the beliefs of many of the Founders that a representative republic required broad-based property ownership—typically land, or, in the case of the cod fishery, shares of profits—and a thriving middle class if the nation was to have a future based on real political liberty.

John Adams repeatedly sounded the alarm on inequality—specifically that he believed the concentration of wealth in property ownership would lead to the concentration of political power, which would undo a republic.

Washington asked Jefferson to draft a liberal approach to the sale of public lands to citizens which commenced, albeit with some complications. They moved against the institution of primogeniture, a key plank of European feudalism, and with the Northwest Ordinance of 1787, they all agreed to abolish servitude in what would become Ohio, Indiana, Michigan, Illinois, Wisconsin, and part of Minnesota, so that citizens could easily acquire land in that part of the young country (though slavery would remain a terrible evil for many decades to come in other parts of the nation).

For more than a half-century, up to the Civil War, federal leaders’ approach to land sales generally allowed low prices, installments, and credits in order to facilitate the wide sale of public land shares to citizens. Homesteads were the most popular economic policy of the 19^th century across the political spectrum after being pushed by senior Democrats. Politicians who argued for selling land to the highest bidder and using the funds for the federal budget were drowned out. Finally, in 1862, after definitively accepting the position that land capital was for the people, Republican President Abraham Lincoln said he was for “the greatest good for the greatest number” and he signed The Homestead Act into law.

[I]t is time for our leaders to develop a hopeful and positive agenda to address the future of the American middle class. What better way than to go back to the American egalitarian tradition of broad-based property ownership of capital in a private market economy? Middle class families have faced relatively flat household incomes for decades and have little access to capital ownership, capital income, and capital gains to expand their wealth.

It is time for new thinking on how to democratize access to capital in ways that remain consistent with our principles. Both progressives and conservatives can turn to their respective icons among America’s leaders to light their way forward.

Madison did not favor redistribution of wealth. His proposed plan, as spelled out in a 1792 article in the National Gazette, was to “withhold unnecessary opportunities from the few to increase the inequality of property” in order to avoid an “unmerited accumulation of riches.” He wanted laws that, “without violating the rights of property,” would “reduce extreme wealth towards a state of mediocrity”—meaning a robust middle class. 

Using Washington’s cod fishery legislation as a model and Madison’s ideas as a guide, we can explore a restructuring of the tax code to condition any business tax incentive on having some type of share plan for all employees—whether it’s broad-based profit sharing or an Employee Stock Ownership Plan. No business would be required to implement shares, but every business would at least have a serious incentive to consider the idea and decide if it made sense for their organization. Another proposal could involve a tax credit for any corporation that provides broad-based stock options or grants of stock to all of its workers. Silicon Valley would jump at such a proposal.

Would that today's GOP would remember the concepts of the Founders rather than supporting a return to the Gilded Age.