Friday, January 29, 2016
The One Percent And A Concentration Of Wealth–What Is So Surprising?
Much has been made recently about income inequality and the concentration of wealth. The most radical critics would like to break up these monopolies of power and money and distribute their wealth to the have-nots. Others see the accumulation of wealth as a natural and healthy result of capitalist enterprise. Billionaires like Bill Gates, Steve Jobs, and Mark Zuckerberg have earned their money through intelligence, creativity, a savvy understanding of the marketplace, and unstoppable ambition – all traits valued in America. They like the Rockefellers, Carnegies, Cranes, Mellons before them, are not simply industrialists and financiers. The PC, I-Phone, and Facebook are not just inventions, but innovations which have transformed American society.
Without Standard Oil the remarkable growth of post-Industrial Revolution would never have happened. Without the railroads of Jay Gould, Cornelius Vanderbilt, and Leland Stanford industrial and commercial development would never have spread so quickly. Without Andrew Carnegie’s steel, the construction of cities would never have happened so quickly and dramatically.
Cornelius Vanderbilt www.commons.wikimedia.org
Today’s business philanthropists like Bill Gates have set up private foundations through which hundreds of millions of dollars are given away each year for improvements in health, education, and social welfare. The Gates-supported Global Fund initiative alone, designed to fight AIDS, malaria, and TB, has contributed more to international health than most publically-sponsored programs.
In the early Twentieth Century Rockefeller, Ford, and Carnegie set up foundations which, thanks to their original capitalization and successful investments, are still among the country’s most important grant institutions.
During the Progressive Era the United States Government broke up many monopolies, most noticeably Standard Oil, but the Sherman Act could be interpreted widely. In approving the breakup of Standard Oil the Supreme Court added the "rule of reason": not all big companies, and not all monopolies, are evil; and the courts (not the executive branch) are to make that decision. To be harmful, a trust had to somehow damage the economic environment of its competitors. United States Steel Corporation, which was much larger than Standard Oil, won its antitrust suit in 1920 despite never having delivered the benefits to consumers that Standard Oil did. In fact, it lobbied for tariff protection that reduced competition, and so contending that it was one of the "good trusts" that benefited the economy is somewhat doubtful (Wikipedia).
Washington was clearly ambivalent about the breakup of wealth. Then and now electoral politics are ruled by big money, and few lawmakers wanted punitively aggressive action to be taken against large, wealthy, and generous companies.
More importantly few legislators, other high public figures, and business executives, had the stomach for redistributive economic policies. While there was no doubt that John D. Rockefeller overstepped many bounds of decency and ethics in his ruthless dealings, not all CEOs were so brutally competitive and should be allowed to use their drive, ambition, savvy, and brains to make money for themselves, shareholders, and the country.
Every so often there is a paroxysm of anger against the concentration of wealth and the practices of those who accumulate it. Wall Street as an institution has been vilified by the Occupy Wall Street progressives who feel that the buying and selling of companies, stock, and futures amounts to nothing more than paper transfers that enrich the few and force the many into penury. As in the case of Rockefeller and Standard Oil, some of these powerful investors arrogantly and defiantly broke both laws and rules of ethnics. Enron, Bernie Madoff, and Lehman Bros. found themselves in the crosshairs, and many executives were sent to prison.
Wall Street is healthy again, thanks in part to government bailouts; and although efforts have been made to assure greater surveillance of financial activities, to break up questionable partnerships, and to limit monopoly, the investment banking industry is back doing what it does best – finding loopholes in the law and inventing new financial instruments that will be legal for enough time for billions to be made.
Mitt Romney was criticized during his Presidential campaign for financial marauding – buying up sick companies, tossing workers out the door, making a few cosmetic changes, and selling them at a big profit. He did all these things, but that is precisely what his firm and others like it was supposed to do. He made enormous profits for stakeholders and for company executives.
The fact remains that the concentration of wealth is a natural phenomenon whether at the court of Louis IV, Henry VIII, Persian Shahs, Japanese shoguns, or Chinese mandarins. The pharaohs of Egypt had enormous wealth. The kings of the Gao, Ghanaian, and Eritrean Empires were fabulously wealthy. Javanese princes, Thai regents, and Rajput rajahs all had treasuries that outshone that of Croesus.
How did they acquire such riches? Territorial expansion added new agricultural land, natural resources, and access to the sea. Rome could not have done without the granaries of North Africa or Alexandrian timber for its warships. ‘Exploitation’ – i.e. punitive taxes on citizens – contributed a relatively small part to the wealth of kings. The Lancasters, Yorks, and Tudors accumulated vast wealth because of their European conquests. Even the breakup of wealthy Catholic monasteries in England was insignificant compared to English control of French territory.
The heads of the French aristocracy may have rolled during The Terror, but the landed elite never disappeared and soon were restored to legitimacy and wealth if not power. Radical Reconstruction in the American South was an attempt to emasculate the wealthy plantation owners of the Confederacy, but soon enough they were back in power, reaping as many rewards from fertile Delta land as before the War. In fact Reconstruction offers valuable lessons on what not to do if you have the intention of breaking up concentrations of wealth.
Neither Progressive Era antitrust nor the French Revolution nor Reconstruction could blunt the accumulation of great wealth. It is a social given. A logical and predictable result of human nature. Competitiveness, self-interest, territorialism, and the securing of wealth, status, position, and power are familiar aspects of human life.
No king, emperor, pasha, shah, or prince has ever sat on his wealth. All built gardens, churches, and monuments. All patronized the arts.
The Romans used their wealth to build infrastructure throughout their Empire – roads, bridges, aqueducts, and amphitheaters. The British certainly benefited from the riches of the Indian Raj, but also left an extensive railroad network, a civil service, and a framework of laws.
This is not to say that the concentrations of wealth and power have no downside; and the many popular revolutions that have occurred over the centuries are testament to a balance of power. Empires come and go, either because of revolution, profligate spending, political stupidity, and a thousand other reasons. Yet the concentration of wealth while offensive to the many who scraped by for a marginal living, was not wrong per se. Since all societies accumulate, expand, and protect wealth, how could it be?
Besides, as in the many cases of kings, queens, Bill Gates, and Henry Ford, much if not most of their money – directly or indirectly – contributes to overall economic progress. The poor will always suffer in the course of economic progress and never get a big share of the pie; but without the investment of wealth they would be far more worse off. Much of Africa now is beyond the reach of anyone’s wealth, and the way to a better life is not at all evident.
There will always be an ebb and flow of centers of wealth. They will grow and diminish, change character, diversify and contract, and be subject to public scrutiny. Their executives will always invent new ways around legislation and control.
The desire for wealth is at the heart of the American ethos. In fact we have taken wealth accumulation to new heights. Our private enterprise, risk-taking, and belief in the mantel of respectability conferred by achievement and money make us capitalists par excellence. It is in our blood.
Which is why the howls from Occupy Wall Street, neo-socialists, progressives, and young people under thirty are no more than chirping in the wind. They may succeed in some minor reconfiguration of wealth-generating institutions, but it is really just rearranging the patio furniture.
The point is that we all want to be rich, to control vast treasuries of gold, spend like there was no tomorrow and leave fortunes for generations of our families. No sour grapes allowed, then. Plutocrats are here to stay.