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America’s Most Egalitarian Banker

With our titans of high-finance now creating chaos and rewarding themselves with billions, we might do well to remember a time when someone with good sense — and a conscience — could actually lead America’s top financial institution.

By Sam Pizzigati

Last week’s release of the latest hedge fund manager pay figures didn’t cause much of a stir in America’s business, political, and media circles. A hedge fund manager makes 31 times more [1] in an hour than the typical American family makes in a year? Our nation’s most distinguished personages see no particular cause for alarm.

Marriner EcclesYears ago, by contrast, many distinguished personages felt quite differently. We even had, back then, pillars of the business community who sounded loud, forceful alarms against outrageously top-heavy distributions of income and wealth.

If we today want to better understand why billions in take-home for hedge fund managers really do imperil us all, we might want to revisit what those business leaders from days gone by had to say. Business leaders like Marriner S. Eccles.

At the start of the Great Depression, Marriner Eccles hardly seemed someone who might lead a charge against the economic orthodoxies that justified grand hoards of private fortune. By the early 1930s, after all, the Utah-born Eccles had become the top banker [2] in the Mountain West, the organizer of the first multibank holding company in the United States. 

But Eccles had also come to understand, after watching the great speculative bubbles of the 1920s pop into massive misery, that prosperity — to endure — needs to be shared. Eccles began speaking out on that theme, shortly after the Great Depression began, and soon caught the attention of the early New Dealers.

In 1933, Eccles would become an assistant secretary of the treasury. A year later, Franklin Roosevelt would appoint him to the Federal Reserve Board. He would become Board chair in 1935 and remain in that central position for the next 13 years. No one individual, over those years, had more of an impact on economic policy in the United States.

Looking back on those years, in his 1951 memoir Beckoning Frontiers, Eccles would do his best to explain the impact he set out to make. Mass production, he noted at the outset, demands mass consumption, but people can’t afford to consume if the wealth an economy generates is concentrating at the top.

In the years leading up to the Great Depression, that concentrating was accelerating. A “giant suction pump,” charged Eccles, “had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth.”

“In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands,” Eccles observed, “the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”

Sound familiar? The decade of the 1920s that Eccles describes in his 1951 memoir comes across today as eerily familiar. Then as now, the U.S. economy was floating on a sea of debt.

Then as now, inequality was hollowing out the nation. Eccles put the matter bluntly: “Had there been a better distribution of the current income from the national product — in other words, had there been less savings by business and the higher-income groups and more income in the lower groups — we should have had far greater stability in our economy.”

How would Eccles have reacted to our current debt-ridden, war-torn economy? We can’t, of course, know for sure what Eccles would do. But we do know what he did. In 1942, during World War II, a high-powered team of New Deal officials that included Eccles proposed to President Roosevelt that “a ceiling of fifty thousand dollars after taxes should be placed on individual incomes.”

In our current dollars, this $50,000 ceiling would equal about $700,000. What did FDR do with this proposal? He turned around and asked Congress to place a 100 percent tax on all individual income over $25,000.

Congress would eventually set the nation’s top tax rate at 94 percent on all income over $200,000, and that top tax rate would hover around 90 percent for the next two decades, years that would see the greatest period of middle class prosperity in U.S. economic history.

In 2005, the latest year with statistics available, America’s leading hedge fund managers and the rest of the nation’s top 400 income-earners faced a top tax rate of 35 percent. They actually paid, after loopholes, just 18.2 percent of their incomes in tax.

Marriner Eccles would not approve.

Sam Pizzigati edits Too Much [3], the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies.