Plutocracy

A history of analytical critiques of plutocracy.

Castles, mansions (not just one), huge yachts, private jets, and much more connote extreme wealth these days—including private islands.

By Derryl Hermanutz, OpEdNews

Rob Kall has asked OpEd News readers to imagine what a world without billionaires would be like.   In a comment stream he noted Chrystia Freeland’s new book, “Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else”.   Plutocracy, which means rule by the rich (the “plutocrats”), is not a new American (or global) phenomenon, though it has grown enormously larger and more dominant and gone “supranational” in recent decades.   Corporations and their “stars” and CEOs are now replacing nation-states and their politicians as the predominant power players on the global stage.   Nor is reporting on and critical analysis of plutocracy a recent innovation.

I’m currently reading C. Wright Mills’ 1956 book, “The Power Elite”, about the corporatization (concentration and institutionalization) of the wealth of America’s power elite.   American plutocracy began in earnest during the post Civil War Gilded Age when control of the financial and economic resources of America (including vast swaths of prime development real estate given to railroads and other private businesses) was gained by the industrial “robber barons” of that era via legal, financial and political machinations.   As always, the big Anglo-American banks who create all the credit money to finance and monetize these gains are central players.   WWI and WWII financial and industrial profiteering vastly increased both the absolute size and wealth and the concentrated ownership of the new financial, industrial and real estate corporate aristocracy.

After WWII, corporatism was fully in command of America’s economic life.   The Cold War mentality of permanent war readiness provided the military-industrial “defense” industries with not only lucrative and secure government funded corporate profits, but a virtual monopoly on the most high tech scientific and engineering talent and inventions.   The “militaristic worldview” of the elites, the politicians and the general public also elevated the military commanders to new heights of foreign policy and even domestic economy policy influence.   International relations were no longer “diplomatic” relations, they were now military relations: everyone was either ally or enemy.

At Senate Armed Services Committee hearings before his confirmation as Secretary of Defense, former CEO (and at the time still a very large stockholder) of General Motors Charles Erwin Wilson was asked if he could make a decision as Secretary of Defense that would be adverse to General Motors.   His famously misquoted answer was that he could not conceive of such a situation because, “for years I thought what was good for our country was good for General Motors”.   Corporate interests were (and are) identified as “America’s” interests, but they are really just the money, power and status interests of the ruling class.   These interests sometimes coincide with the interests of independent business and of labor, but “policy” is made to serve the large interests, not the small interests or “the people”.   To a significant extent democratic and populist political rhetoric is just a smokescreen to disguise the real corporate-friendly objectives of policy choices, which is well known to readers of non-corporate news sources like OpEd News.

Mills describes how the corporate plutocracy has developed (and in most cases believes in) a worldview that is embodied in what he calls the “Romantic conservative”. This mythical image of the political economy is rooted in the classical liberal ideal of “balance”: free markets in economics and politics where competitive forces work “as if by an invisible hand” to prevent anyone from gaining power and to optimize socioeconomic outcomes for everyone.   This view is “romantic” because it imagines a wonderful world that might be, and chooses not to see the real world as it is.

The seminal documents of this attractive but anti-historical and counterfactual worldview are two books published in the mid-18th century.   The first was Montesquieu’s 1750, “The Spirit of the Laws”, where he lays out his tripartite system of government where each of the Executive, Legislative and Judiciary branches of government acts as effective checks on each other’s aspirations to power; the vaunted “checks and balances” system.   America adopted Montesquieu’s system in the constitution of its government.

In 1864 a Frenchman named Maurice Joly published a book titled, “The Dialogue in Hell Between Machiavelli and Montesquieu: Humanitarian Despotism and the Conditions of Modern Tyranny”.   Machiavelli published “The Prince” in 1513.   Joly pits Machiavelli’s devious Prince against Montesquieu’s rational system of government.   In the book the recently deceased Montesquieu joins Machiavelli in Hades where they await the Resurrection and Judgment.   Montesquieu regales Machiavelli with the genius of his “incorruptible” balance of powers political system.   Machiavelli proceeds to lay out how he could indeed corrupt Montesquieu’s “incorruptible’ system in very short order.   And as the coup de grace, Machiavelli informs the now horrified Montesquieu that his beloved republican France has ALREADY descended into the tyranny of (Napoleonic) Empire.

“Balance of power” is an Enlightenment “theory” of ideal government, but Joly demonstrates how political realism, the reality of corrupting power, easily defeats the aspirations of enlightened reason.   People can be corrupted by appeals to their narrow and shortsighted self interest.   As Donald Wood concludes in his 1996 book, “Post-Intellectualism and the Decline of Democracy: The Failure of Reason and Responsibility in the Twentieth Century”, the Enlightenment ideals of enlightened self interest have not been realized.   Human nature has not “improved” as was hoped.   “Self government” is not possible, if the people prefer bread and circuses provided by their rulers.

The other founding document of the classical liberal worldview is of course Adam Smith’s 1776, “The Wealth of Nations”, where Smith invites us to imagine a free market of individual small entrepreneurs, butchers and bakers and candlestick makers, independent businesspeople competing within their trade for the privilege (and profits) of serving the needs and wants of the population.   Clearly Romantic conservatives have never actually “read” Smith’s book, or they would be appalled to encounter such heresies as,

“It is to prevent this reduction of price, and consequently of wages and profit, by restraining that free competition which would most certainly occasion it, that all corporations, and the greater part of corporation laws, have been established.”

Smith wrote The Wealth of Nations as an indictment against the “actual” British political economy of his era, which was corporate mercantilism.   The largest and most domineering of Britain’s economically and politically dominant corporations was the British East Indies Company, against whose commercial predations Americans revolted at the Boston Tea Party and the American Revolution.   The Company effectively wrote its own laws much like ALEC writes corporate laws for the US government today.   In the last paragraph of his chapter, “Conclusion of the Mercantile System”, Smith wrote,

“It cannot be very difficult to determine who have been the contrivers of this whole mercantile system; not the consumers, we may believe, whose interests have been entirely neglected; but the producers, whose interest has been so carefully attended to; and among this latter class our merchants and manufacturers have been by far the principal architects.   In the mercantile regulations, which have been taken notice of in this chapter, the interest of our manufacturers has been most peculiarly attended to; and the interest, not so much of the consumers, as that of some other sets of producers, has been sacrificed to it.”

Corporatism, which is “political” economy as contrasted with the politically independent free market economic ideal of classical liberalism, is essentially an industrial era adaptation of feudal rule by a landed aristocracy.   In both cases the owners of the property exercise the power of their wealth to make the laws and “rule” the nation.   The nation does not “govern itself’ as if the Hand of Providence (embodied in the divine right of the king), or its secular equivalent the “invisible hand of the marketplace”, is automatically guiding the fortunes of humanity.   Men exercising power govern the economic and political affairs of the nation.

Corporatism is a kind of collusion or harmonizing of the interests of the commercial and the political classes.   The political class makes laws that enable the commercial class to extract and accumulate wealth, and wealth is shared via mutual favors and interconnected ownership of financial and economic resources among the members of these two classes.   “Labor” is just another economic resource that is used to generate wealth that is extracted as profits.   Just as in the feudal era and the era of classical liberalism, the interests of labor and independent small business are not present in the power structure.   These interests are, in Smith’s word, “sacrificed” to the interests of the powerful.

Ownership and control of the nation’s wealth is ALWAYS a central feature of a ruling class.   Personal wealth is a prerequisite for membership in the elite, the ruling class.   Great wealth gives its owner great economic power.   Control of the economic life of a nation is control of the nation.

In bygone eras control was gained by the sword and was maintained by a feudal system where the peasants were completely powerless and military force was the exclusive preserve of the land owning aristocracy.   The serfs were also property of the lords of the feudal estates, who in turn owed service to the King who claimed ownership rights over the entire nation and at whose pleasure the lords held their estates.   The Church, in service to these relatively stable social structures, preached peasant submission to their heavenly and earthly kings.

After the Magna Carta in 1215 the lords gained more autonomy, but autonomy among plutocrats should not be mistaken for autonomy “of the people”.   In the industrial era feudal serfs became wage serfs, and just as some feudal serfs at some times and in some places enjoyed quite beneficent treatment by their rulers, so wage serfs at times (such as the three decades after WWII in America) shared in a general prosperity.

In recent centuries the sword’s role in taking land and extracting wealth has been supplemented by finance: the creation and allocation of credit money first by bond merchants and later by the more formal institution of “banking.”   Money can peacefully “buy” most anything in this world, including human beings and all their skills and talents and energies and attributes, so by possessing the power to create financial credit out of thin air and thereby issue a nation’s and the world’s “money”, the big international bankers are able to achieve with finance what had previously required military force.

“Economic hitmen” entrap nations in unpayable debt that is owed in a foreign currency, a currency that the indebted nation is not allowed to create but must “earn” by selling real things and receiving payment in that foreign currency.   The hitmens’ sales rhetoric is that export earnings from the newly financed investments will provide the foreign currency funds to repay the loans.   The “loans’ {which are actually loans of “credit money” that banks do not “have” but actually “create” on their balance sheets as a new bank deposit in the borrower’s bank account offset by a new debt balance in the borrower’s loan account: banks “create” the money that they lend}, are secured by “collateral”.   Collateral is real things of real value, which the borrower pledges to forfeit to the banker if he fails to repay his loan.   Collateral is real mines and national utilities and buildings and infrastructure, built up by the nation’s collective efforts over decades or centuries.

So when the borrowers default on the loan payments, the bankers and their collaborators come in and assume ownership of the real resources of the nation.   Or as we see today in places like Greece, the government is pressured to sell the nation’s islands and ports and national infrastructure to get money to pay its debts, but the only people who have money are the plutocrats, who buy the national treasures for nickels on the dollar.   In this way finance is able to convert its power to create money into its power to gain ownership of real resources, real wealth.

Mills believed that 20th century corporatization consolidated America’s rich into a true “class”, self-aware of their own elite position and of their common interests in extracting the productive wealth of the nation (and now the “globalized” world) as their private profits.   There is no need for an explicit “conspiracy”, because all members of the elite class self-consciously share the same interests, and their corporate lawyers and managers vigorously prosecute those interests in the financial, economic and political spheres, the spheres of power.   Mills’ analysis is in the “sociological” tradition of Thorstein Veblen (“The Theory of the Leisure Class”, 1899), whose work Mills acknowledges as seminal but limited in its scope and applicability.

In 1922 Richard Franklin Pettigrew, long term US businessman and Senator, published, “Triumphant Plutocracy: The Story of American Public Life from 1870 — 1920”, which is the period during which Pettigrew was intimately involved in the business and government of America.   He describes how the “robber barons” flat out appropriated vast tracts of the American land mass and its resources, and had their paid Congressman (especially Mark Hanna, whom Mills also names) weasel the government to actually pay for construction of the railroads and the steel mills, etc. that the ‘industrialists’ owned as their private property.

Their great wealth of land and natural resources was simply “taken” from the public domain and legalistically transferred into their private domain.   And their great wealth of industrial infrastructure, such as railroads and steel mills, was paid for out of public funds by the complicit government.   Perhaps not all great fortunes were stolen in these ways, but this form of wealth acquisition defined the era.

This was “The Gilded Age” that Twain and Dudley lampooned in their 1873 book of that title.   Though Balzac is attributed authorship of, “behind every great fortune, there is a crime”, nobody on the internet can actually find a written record of his saying it.   But it is nevertheless true.   America’s great fortunes were weaseled and finagled and stolen by financial and political manipulation and collusion, not “earned” by “rugged individual” economic production and not “accumulated” by personal thrift.   Pettigrew insists repeatedly, from 50 years of first hand experience with these men, that “capital is stolen labor, and its only function is to steal more labor”.   Mills concurs, observing that,

“”if the taxpayers of the United States had not paid, out of their own labor, for a paved road system, Henry Ford’s astuteness and thrift would not have enabled him to become a billionaire out of the automobile industry.”

In the 1920s and 30s British engineer CH Douglas, author of the “social credit” alternative financial system, observed that the incredible productivity of any individual in a modern industrialized economy has very little to do with the individual’s own talents and efforts but is rather a consequence of our “cultural inheritance” of all the productive infrastructure and technologies that our civilization has collectively built up over centuries.   Henry Ford’s success depended on just this kind of cultural inheritance of advanced technologies like mining and metallurgy and machining and electricity and rubber and engines and gasoline and factory organization of resources and labor and, of course, the national road system.

Already by the mid-1800s such diverse writers as John Stuart Mill (“Principles of Political Economy”, 1848) and Marx/Engels (The Communist Manifesto”, 1848) were recognizing that in an industrialized economy where machinery replaces human labor, it is no longer necessary or even desirable to attempt “full employment” because all of the people’s economic needs and wants can be produced with much less human work.   Even that great advocate of free trade David Ricardo, in his 1817 book, “Principles of Political Economy and Taxation”, in his chapter, “On Machinery”, acknowledged that the Luddites were right, that the adoption by capitalists of machinery really is damaging to the interests of the laboring classes.   Machinery, Ricardo wrote, “renders the population redundant”.

Douglas saw this too, that the labor of the entire population was no longer necessary to the productive process.   Nevertheless the producers still need a “market” to sell their outputs, so they still need a population of “consumers” of those outputs.   As a solution Douglas advocated (in a context where the government reclaims its money issuing power from the bankers) that the government issue to every citizen a “national dividend”, which they receive by virtue of their owning a share of the nation’s cultural inheritance of natural resources and an industrial economy.   Every American owns an equal share of USA Inc, and every American receives a money dividend that enables him or her to purchase a share of the industrial output.

This is more complicated in today’s globalized production system where Chinese and global goods have significantly replaced American goods in America’s consumer economy, but the principle of a national dividend is still applicable.   Milton Friedman, intellectual father of today’s dominant neoliberal worldview, advocated a negative income tax, which Nixon supported when he was told that by paying a “guaranteed annual income” he could eliminate welfare bureaucrats.   JS Mill observed that in a post-employment industrial economy, the issue of distribution of the fruits of production would have to be decided by a political process.

The market system only pays incomes to contributors to the productive process, so if industrialization creates large scale structural unemployment then some other means of income distribution is needed to get purchasing power into the hands of the “redundant” population.   But Romantic conservatives to this day continue to appeal to “the invisible hand of the free market” to “automatically” manage income and wealth distributions, even though income and wealth distributions within a corporatized economy are determined by power, exercised by self-serving “men”, not by disinterestedly objective and non-human “market forces”.

Pettigrew’s only folly is found at the very end of his book where he admires the new soviet government of Russia, before the authoritarian realities of soviet communism (meet the new boss, same as the old boss) became apparent.   I spent my life in small business and I believe in individual free enterprise, and I don’t agree that socialism is the answer to “grand theft nation”.   I share OpEd News commenter Old Codger’s doubt that there is a realistic solution.

I agree with Leopold Kohr (“The Breakdown of Nations”, 1957) and his friend and student E.F. Schumacher (“Small is Beautiful”, 1973) that “bigness” itself is the problem.   You can’t have “mass society” without having big business and big finance and big government, and these centers of big money and power are magnets for wealth, power and status hungry individuals who strive energetically and often ruthlessly to get their hands on these levers of power.   So I agree with Codger that we cannot reform “their” big systems, because “they” will always do whatever it takes to maintain their wealth, power and status monopolies within the systems that they built for that purpose.

These rulers own and control all the levers of power, especially the mass media and the education systems that brainwash the population and render them incapable of understanding what is happening, and make it impossible to counter the propaganda with equally trumpeted truths.   The masses respond to emotional appeals, not reason, which makes “public opinion” easy to manipulate by slickly professional and power serving mass media propagandists.   We have the internet, but I would suggest that we only reach intellectuals who, as Plato described in “The Republic”, are interested in observing and understanding but want nothing to do with “government” and are certainly not going to engage in open warfare with the ruling powers.

Most intellectuals sell their minds for money in service to the rulers, as far as that goes.   For example, listen to or read some neoclassical economists bamboozle themselves with absurdly surreal economic “models” that “justify’ the status quo.   Money, banking and finance DO NOT EXIST in these laughably unreal model worlds with barter economies: there are just producers trading their surplus outputs with each other, as Adam Smith idealized over two centuries ago.   Neoclassical economics is the dominant paradigm that has been taught in universities, swallowed hook, line and sinker by business journalists in print and TV media, and applied by economic policy makers for the past 6 or 7 decades.

These “economists” are the modern priesthood spinning an alternate reality that justifies the divine right of plutocrats.   They are the “experts” who hold all the high positions in the academy and the media of public opinion formation.   They have always been countered by “heterodox” economists who accurately describe the real economy and understand how it works, but the real economists are vastly overmatched in the power structure by servants of the orthodox economic belief systems.

So frontal resistance is pretty much futile.   Or like in the case of the French and Russian revolutions, the people rise up and destroy the old rulers but some new tyrant simply comes in and picks up the reins of absolute power that were dropped from the dying hands of the old tyrants.   In place of Louis XVI and Czar Nicholas, you get “emperor” Napoleon and “comrade” Stalin.   I think if there is going to be a solution it is not going to be a mass movement but rather individuals moving out of the system and setting up some kind of sustainable life on their own and in smaller communities.

Rob has noted that there is already a widespread “transition town” movement, relocalizing, rebuilding community: small, local, sustainable solutions.   I think that’s where the real answers can be found.   Ellen Brown is leading the public banking movement, where state or even local governments set themselves up as their own bank as North Dakota did in 1919 with great and enduring success for that state.   Typically 40% of the total cost of public infrastructure is the interest costs on the financing, which is typically handled by a large Wall St bank.   A state owned public bank can perform the same functions and save the public 40% of the cost.   In other words, you can build almost twice as much infrastructure for the same amount of tax money simply by paying the interest on the financing to yourself instead of to a private banker.   It should be a no-brainer, especially in light of North Dakota’s almost century of successful example, but there is strong resistance and propaganda emanating from the parties who would lose from this change: big private bankers.

We should also be aware how fragile our current globalized economy is, and how vulnerable we are by our dependence on it.   When the financial system froze up in September 2008 cargoes sat on docks because sellers could not be certain that the buyer’s bank would still be in business by the time the cargo arrived and payment was due.   We are completely dependent on the global “just in time” delivery system to deliver our necessities of life.   Money is the nervous system of the economy, and if the nervous system fails, the economy stops moving.   That almost happened in 2008, and none of the underlying monetary problems have been solved in America or Europe.

The whole world uses the same bank-debt money system, though some nations have either total (China) or partial (Germany, Japan) publicly owned banks alongside the private banks.   Public banks are as sound as the nation itself, so unless the political administration chooses to let their banking and money and economic system fail, it can be propped up to keep it functioning.   Germany no longer controls its own money, as it has adopted the euro which can only be created by the supranational European Central Bank, so Germany has given up its monetary sovereignty and is ultimately at the mercy of the money issuing euro banking system.

The US government abdicated its constitutional responsibility to issue the nation’s money with the 1913 Federal Reserve Act that transferred US dollar money issuing authority to the private banking cartel.   But Congress retains the power to change US banking legislation as needed, and the government possesses other money issuing powers, so the US remains at least legally a monetarily sovereign nation even though the government has yet to exercise its money issuing power.   Lincoln issued government money (United States Treasury Notes, “greenbacks”) to pay for the North’s waging of the Civil War (the South issued their own graybacks), but Lincoln was shot and his greenbacks (and the South’s graybacks, which became worthless when the South lost) were taken out of circulation and the “gold-backed” bankers regained control of US$ money issuance.

The Biblical Book of Revelation describes “Babylon the Great”, which is a totally corrupt system luxuriating in extracted wealth and power and commodification of human beings like the globalized plutocratic empire of billionaires we see today.   Pettigrew was already calling America’s system a plutocracy over 100 years ago, as he was losing his Senatorial battles against America’s corporate-serving policies of empire building contrary to the spirit and the law of the American constitution.   In Revelation, Babylon and all who live in her system fall violently in a very short timeframe.   The advice given in Revelation is, “Come out of her my people, so that you do not share in her sins, so that you will not share in any of her plagues”.

I think that’s good advice, because I don’t think anyone can succeed in wresting control of this system from its current rulers, nor do I think anyone should try.   In “Plutocrats”, Chrystia Freeland quotes robber baron Andrew Carnegie, and members of the new crop of billionaires, expressing their belief that they are “earning” their extreme wealth.   In fact they are “extracting” it, as all great personal wealth cannot be earned by individual effort but must be extracted from the efforts of many other contributors.   Bill Gates and Mark Zuckerberg, two of the modern billionaires, did not “personally” contrive to extract their billions from the world.   Their lawyers and investment bankers and lobbyists handled that bit of the business.   Today’s great wealth is “corporate” wealth, after all, and a corporation is a collective effort of thousands of managers and employees and contractors working in common cause to enrich their corporation and themselves.   Adam Smith described this in 1776, and corporate motives haven’t changed in the interim.

As long as the system of mass society provides opportunity to amass corporate scale wealth and power, self-serving people will just keep seizing control of the system’s levers of power.   So I say the best bet for anti-corporatists is to simply fade out of their mass system and work towards building small scale local solutions.   Almost everybody in the world today except peasant farmers depends on the corporate production and transportation system for their necessities of life like food and electricity and heating fuels.   If that system crashes, then we lack the means to survive, especially if the system goes down in winter.   The grocery stores would be emptied on day one and with no fresh deliveries people would soon starve and civil order would break down.   Once we finish starving to death and slaughtering each other “the meek” peasant farmers who never got rich from Babylon and who don’t depend on her could very well “inherit the Earth”.

So if the question is, “What would life be like without billionaires?” my answer is that it would be a reversion to more simple small scale society where there is little if any excess wealth to extract.   I don’t think you can defeat the plutocrats and “redistribute” the fruits of corporate production by changing tax policy, because the plutocrats “are” the administrative top level of “government” and they’re not going to willingly give up their privileges.   I think you have to abandon them and their system and make your own life outside their corporatized power structures.

It is not hypocrisy to use what you need from the system, as it has pretty much already claimed ownership of all the economic resources that we need to survive, and you have already contributed to building up the world as it is.   And you don’t have to drop out entirely.   Just start retaking responsibility for your own and your family’s and your community’s well being.   You don’t have to wait for “the government” to solve your problems for you by fixing “the system”.   The system will probably not get fixed, not in the ways that would benefit you.

Small towns and rural areas are probably better than big cities for more independent living, but even transition towns within big city borders can function as “local” communities that generate some of their own solar or wind electricity, grow their own food and otherwise insulate themselves against failure of “the system”.   At least some degree of self-sufficiency in providing the necessities of life for yourself, within a small community of like minded people, is a personal security issue.   Who knows, it might even be a more rewarding way of life than spending all your working hours chasing the almighty buck.

ABOUT THE AUTHOR

I spent my working life as an independent small business owner/operator. My academic background is in philosophy and political economy. I began studying monetary systems and monetary history after the 1982 banking crash that was precipitated by the Mexican default and rendered 7 of America’s 8 biggest banks, and 4 of Canada’s Big 5, technically insolvent. They were quietly bailed out then as they are being loudly bailed out now. After the 2008 banking crash I started blogging about monetary system reform, in the tradition of Irving Fisher and CH Douglas who were prominent voices for reform during our last systemic collapse in the 1930s.

I also write about the wide divergence between perception and reality in matters of public opinion, and the central role of mass media propaganda in moulding perception and manufacturing consent, a role identified by Walter Lippman and perfected by Edward Bernays and Madison Avenue. Financial, industrial, and military-industrial corporatism is increasingly usurping the functions of government in America, Europe and elsewhere, replacing elected republican and democratic forms of government with unaccountable plutocracies mascarading as “free enterprise”. Plutocracy is a neofeudal tyranny of lawless power, serving the interests of wealth rather than democratic justice.