So at the risk of annoying historians, I’ll refer to the entire period from the end of Reconstruction in the 1870s to the coming of the New Deal in the 1930s as the Long Gilded Age. It was a period defined above all by persistently high levels of economic inequality.
We don’t have detailed statistics on the distribution of income and wealth in America during most of the Long Gilded Age. There’s enough evidence, however, to show that America was a vastly unequal society circa 1900—an observation that won’t surprise anyone. Perhaps more surprisingly, the evidence also suggests that the level of inequality remained almost unchanged through the twenties.
That’s important to know. The persistence of extreme inequality right through the Jazz Age is a first piece of evidence for one of this book’s central points: Middle-class societies don’t emerge automatically as an economy matures, they have to be created through political action. Nothing in the data we have for the early twentieth century suggests that America was evolving spontaneously into the relatively equal society I grew up in. It took FDR and the New Deal to bring that society into being.
What’s the evidence that the Gilded Age persisted, in crucial respects, right through the 1920s? One useful number that we can compute, even lacking extensive statistical data, is the number of extremely rich Americans. J. Bradford DeLong, an economist and economic historian at Berkeley, has calculated the number of “billionaires,” whom he defines as those with wealth greater than the annual output of twenty-thousand average American workers. (That was about a billion dollars in the mid-1990s, when he devised the measure, but close to $2 billion today.) In 1900 there were, by DeLong’s count, twenty-two American billionaires. By 1925 there were thirty-two, so the number of billionaires more or less kept up with population growth right through the Progressive Era. It was only with the New Deal that the billionaires more or less vanished from the scene, dropping in number to sixteen in 1957 and thirteen in 1968.[1] (Around 160 Americans meet DeLong’s criterion now.)
The Gilded Age billionaires were exactly who you’d expect: the robber barons, the men who made fortunes off railroads, manufacturing, and extractive industries such as oil and coal. In 1915 John D. Rockefeller topped the list. Behind him were two steel magnates, Henry C. Frick and Andrew Carnegie, then an array of railroad builders and financiers, plus Henry Ford.
The count of billionaires fits with other evidence, such as the sizes of large estates, suggesting that the concentration of wealth at the very top was about the same at the end of the 1920s as it was in 1900. That concentration then declined dramatically with the coming of the New Deal. During the first few decades after World War II, the inequalities of the Gilded Age became a thing of myth, a type of society that nobody thought would return—except that now it has.
The high level of inequality during the Long Gilded Age, like high inequality today, partly reflected the weak bargaining position of labor. For most of the era, large employers were free to set wages and working conditions based on whatever the job market would bear, with little fear of organized opposition. Strikes were often broken up by force—usually involving strikebreakers hired by employers, but sometimes, as in the 1892 strike at Carnegie’s Homestead steelworks and the 1894 Pullman strike, by state militias or federal troops. Unionization rates and union influence gradually rose after 1900, temporarily reaching a peak soon after World War I. But a counterattack by employers pushed labor into retreat again. By the late 1920s union membership, which reached more than 17 percent of the labor force in 1924, was back below 11 percent—about what it is now.
High inequality didn’t mean that workers failed to share any of the fruits of progress. While inequality was great, it was more or less stable, so that the growth of the U.S. economy during the Long Gilded Age benefited all classes: Most Americans were much better off in the 1920s than they had been in the 1870s. That is, the decline in real earnings for many workers that has taken place in America since the 1970s had no counterpart during the Long Gilded Age. Urban workers, in particular, saw a vast improvement in the quality of life over the course of the Long Gilded Age, as diets and health improved, indoor plumbing and electricity became standard even in tenements, and the emergence of urban mass transit systems enlarged personal horizons.*
These improvements, however, shouldn’t lead us to gloss over the persistence of real deprivation. At the close of the twenties many American workers still lived in grinding poverty. For the unlucky—those who got thrown out of work, were injured on the job, or simply grew old without children to support them—there was great misery in the midst of opulence for the few. For before the 1930s there were no significant government income redistribution policies such as welfare or food stamps, nor were there any government provided social insurance programs such as Social Security or Medicare. Government at all levels was very small, and as a result taxes on all but the very richest were extremely low. For example, in the mid-1920s $10,000 bought as much as about $120,000 today, and people with incomes of $10,000 a year were in the top 1 percent of the income distribution—but they paid less than 1 percent of their income in income taxes, compared with around 20 percent for similarly situated people today. So it was a very good time to be rich. On the other hand, since income support programs currently account for most of the income of the poorest fifth of Americans, being poor in the 1920s was a far harsher experience than it is today.
This leads to an obvious question: Given the great wealth being generated during the Long Gilded Age, the great disparities in income, and a democratic system in which poorly paid workers vastly outnumbered the minimally taxed elite, what explains the absence of effective demands that the government do more to soak the rich and help the less well off?
It’s not that the concepts of progressive taxation and the welfare state had yet to be invented, or even implemented in other places. In Germany, Otto von Bismarck introduced old-age pensions, unemployment insurance, and even national health insurance in the 1880s. Bismarck acted out of political calculation, not compassion—he wanted to head off potential opposition to the Kaiser’s rule. But in so doing he showed that more compassionate government was, in fact, possible. Here in the United States the system of benefits introduced after the Civil War for veterans and their survivors was, in important ways, a forerunner to Social Security. The Populist platform of 1896 called for a progressive income tax and public works programs to provide jobs in times of depression—not qualitatively very different from what FDR would finally do almost forty years later.
Nor was America too poor a country to afford such programs. The United States in the 1920s was substantially richer than European countries, yet France, Germany, and the United Kingdom all had substantial programs of public aid several times as large as those in America.[2] In fact the United States in 1925 was about as rich as Britain would be in the early post–World War II years, the years in which Britain established a full-fledged welfare state, including national health care—a welfare state that was in some ways more extensive than the United States has now.
So why wasn’t there an effective demand to, as Huey Long would later put it, “soak the rich and help the little man”?
Republicans, who began as the party of free labor but by the 1870s had undeniably become the party of big business and the rich, won twelve of the sixteen presidential elections between the Civil War and the Great Depression. They controlled the Senate even more consistently, with Democrats holding a majority in only five of the era’s thirty-two Congresses. While the House of Representatives was somewhat more competitive, even there the Republican Party was usually in control.
1.
Bradford DeLong, “Robber Barons,” econ161.berkeley.edu/Econ_Articles/car negie/DeLong_Moscow_paper2.html.
*
The improving quality even of slum living can be seen by comparing restored apartments from different eras in New York City’s Lower East Side Tenement Museum.