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What Rules America?

The Personal Distribution of Income and Wealth

edited by James D. Smith
National Bureau of Economic Research/Columbia University Press, 568 pp., $17.50

The Bohemian Grove and Other Retreats: A Study in Ruling-Class Cohesiveness

by G. William Domhoff
Harper & Row, 250 pp., $2.45 (paper)

Why can’t we deal with class? Terms like “upper middle” and “lower middle” refer to style and sophistication, not the deeper divisions of social life. On the whole we prefer to circumvent the question of class. We think of cities as being composed of “ghettos” and “white ethnics” and “the aged.” Discussing families on welfare or crime in the streets, we speak of blacks and Puerto Ricans. Sociologists neutralize the subject by referring to “stratification.” Or they tell us it is “ambiguous” and “complex.” The Census once reported that 70 percent of all Americans show some “inconsistency” between their earnings, education, and occupations. We all know Yale graduates who are driving taxis.

Yet we know America has classes, and that they are more than temporary way stations. No matter how we divide up Americans according to culture, careers, even income, power is at the heart of the question. Some people have more freedom, more independence, than others. Some are buffeted about from birth to death, never in a position to bend events or answer back to authority. Class may confer power over others; but in personal life it affects how you can make the world work on your behalf. Traditionally class has depended on property. In the classical couplings—patrician and plebeian, lord and serf, guild master and journeyman—one class had holdings of substance. When Marx spoke of the bourgeoisie, he meant people owning a mill with at least 100 workers and living in a town house with servants.

Nowadays one can go a long way in America without property. Indeed, a person can achieve influence and independence without ever accumulating an estate of six figures. Hence all the emphasis, in writing about influence, on officials and administrators whose power derives from office rather than ownership. Hence too the stress on seniority, tenure, and professional certification: securities upheld by law even if not entirely transmissible to one’s heirs. However, the current state of the economy has shown how flimsy some of these underpinnings can be. Seniority isn’t worth much if one’s company goes out of business. Having an architect’s license this year is hardly a guarantee of comfort. After floating through the Sixties on whimsical balance sheets, we are again learning that there is no substitute for wealth. Moreover the desire to accumulate holdings is still strong: witness Spiro Agnew, William Ronan, and Otto Kerner. Doctors, lawyers, and businessmen, as they reach their forties, see the prospect of a cool million they can call their own, notwithstanding neglected wives, disaffected children, and involvements in dubious projects.

Which Americans should we call rich? Peter Singer, in these pages some weeks ago (NYR, March 6), commented that the richest 5 percent of our population holds 40 percent of the nation’s wealth. However, 5 percent of the population is three million families, or anyone earning at least $30,000 a year. G. William Domhoff—of whom more later—concentrates on the top 1 percent, which still means 600,000 households and a bottom line of about $60,000. The trouble with both estimates is that they include too many people who, while well off, are still what we think of as upper-middle-class.

A surprising amount of information on income is available, so long as we realize that agencies collect figures in different ways and for different purposes. Moreover, by the time the tables get published the statistics can be out-of-date. The 1970 census, for example, has some interesting figures; but they are based on incomes for 1969, which is a long way back. At that time, 390,708 of the country’s seventy million households had incomes in excess of $50,000, the top category in the census summaries.^1 Almost half of these $50,000 households had at least two and often three wage-earning members. So along with affluent executives, the bracket includes families in which on Friday night everyone empties his pockets onto the kitchen table. The census also found that in 1969 the country contained 13,457 households with incomes of over $50,000, even though none of the members worked. This is apparently what we have in the way of retired, widowed, and otherwise idle rich.

Still, as was intimated earlier, within a top bracket beginning as low as $50,000 will be many salaried and professional people who are well off but still not what we mean by rich. For more detailed information on the higher reaches, our best information comes from the Internal Revenue Service, which does a lot of unpublicized things with our tax returns. (Even when the rich pay little or no taxes, they still submit returns.) As a result, IRS statistics are not precisely comparable with those of the census. Thus while the census uncovered 390,708 households with over $50,000 in 1969, the Internal Revenue Service received 410,521 such returns that year. One reason for the discrepancy is that in some cases wives and husbands file separately; another is that IRS does a better job than the census at finding certain kinds of people. (The evidence indicates that citizens are about equally truthful in answering the two arms of government.) IRS uses its “adjusted gross income” figure rather than the full total. However for most households the difference between the two is not great. The latest IRS breakdowns cover 1972 incomes, as listed on 78 million returns.2 These include 43 million joint husband-wife declarations, with most of the remaining 35 million coming from single persons, of whom 3.6 million were heads of families. (See table on next page.)

HIGH INCOME TAX RETURNS: WHO MADE HOW MUCH

While $50,000 clearly puts one at the top of the pyramid—only three-quarters of 1 percent of the country’s households reach that level—most people in that bracket still get most of their income from salaries and other payments for services. It is only when one passes the $200,000 mark that property becomes the major source of income. Most of the households in the $50,000 to $200,000 range represent the executive and professional explosion we have experienced since World War II. These people tend to be experts and administrators rather than owners; and because they earn their money, a disproportionate part of it goes straight to the government in taxes. Moreover when they do invest they are not terribly good at it. Their ratio of capital losses to capital gains is over twice that for households above $200,000.

All things considered, the country’s propertied class can be defined as the individuals or families or households who file the top 22,887 returns. Representing three one-hundredths of 1 percent of all filings, their average income ($407,000) amounted to forty-two times the national average ($9,600) for 1972, and their unearned income ($290,000) came to 337 times that for the average household ($860). But all this simply lets us know what people took in during a given year. Indeed, in the case of the rich, it tells only what they decided to take in. It does not apply to the extent and distribution of personal holdings.

On wealth itself we have no reliable information. Neither the census nor Internal Revenue has ever asked people to declare their holdings. What you own is nobody’s business while you still have breath in your body, the only exception being if you happen to run for or hold office in a jurisdiction where disclosures are mandatory. Among our rights to privacy, this one seems paramount. And were we to require accountings, there would still be problems. The cash value of real estate, mineral rights, or art objects often depends on which appraiser you retain. Moreover a labyrinth of brokers, dealers, street names, holding companies, and family foundations can keep the curious from knowing a particular person’s holdings. It takes the researchers at Fortune and Business Week the better part of a year to run down estimates on well-known families, and even there the chief source is gossip.

Hence we should be grateful to Professor James D. Smith of Pennsylvania State University for his efforts in this matter. He analyzes estate records—the sums people declare when they die—to obtain an idea of how much is still held by the living. The method has plenty of pitfalls, of which Smith is painstakingly aware. Still it is the best technique we have. Unfortunately it takes time to collect and compute the figures. (His new book works with 1969 data.) Even so, Smith and his colleagues have given us some information where previously we had none whatever.

In one of the papers, Vito Natrella calculates that in 1969 some 120,000 people had a net worth of at least $1 million. However this valuation includes everything from yachts and villas to gas leases and sculptures, in addition to equities in self-owned businesses and practices. To get more accurate figures it is probably best to shelve the hardware and count only negotiable securities. By and large this means corporate stocks. (Despite tax breaks, the rich put only about $15 into bonds for every $100 they hold in stocks.) According to Smith, approximately 55,000 living Americans had stocks worth $1 million in 1969, and of these 5,000 held more than $5 million.3 Together these 55,000 people owned about 18 percent of the country’s personally held corporate stock. If we want evidence of concentrated wealth, this is probably the best statistic to use. Happily, it approximates the Internal Revenue total on $200,000 filings. Rather than Ferdinand Lundberg’s legendary sixty families, America’s rich consist of 50,000 to 60,000 people, representing perhaps 20,000 households.

Who are these people? Many of course are retired, and one can see them entering and leaving their East Seventies town houses and Palm Springs condominiums. The largest single group, however, are local proprietors. They own the largest department store in Duluth, the second biggest bank in Memphis, and lettuce fields in the Salinas Valley. In the larger cities their holdings extend into newspapers, real estate, and brokerage houses. This is our best counterpart of a classical bourgeoisie, and its members have a major say in controlling civic affairs. Generally their influence stops at the state line, however. Owning half of downtown Wichita doesn’t usually gain you a dinner invitation from the White House.

But are they a ruling class, and a national one at that? Perhaps the most prolific exponent of this view has been G. William Domhoff, a young psychologist at the University of California’s Santa Cruz campus. He began his inquiries in 1967 with Who Rules America? Three years later he published his answer: The Higher Circles.4 His most recent book, The Bohemian Grove, carries the subtitle “A Study in Ruling Class Cohesiveness” and examines clubs, associations, and similar gathering places. When Domhoff says, “There is a ruling social class in the United States,” he means to be taken literally. He is not simply saying that people in top positions bump into one another at the Council on Foreign Relations or clubs like the Links and Pacific Union. Rather, he contends, they form a distinctive stratum whose members frequent the same resorts and send their children to connected prep schools. These linkages lead to friendships and marriages, ensuring hegemony for the future. Interlocking directorates are not enough for Domhoff: he cites bloodlines and debutante parties to thicken the fusion.

  1. 2

    Statistics of Income, 1972: Individual Income Tax Returns, Internal Revenue Service (US Government Printing Office, 1974), Table 4.

  2. 3

    James Smith, Stephen Franklin, and Douglas Wion, The Concentration of Financial Assets in the United States (Urban Institute, 1973), Table 6.

  3. 4

    Who Rules America? (Prentice-Hall, 1967), The Higher Circles (Random House, 1970).

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