The Plutocrats Of Wall Street And Silicon Valley Are Scamming America

Authored by Ryan McMaken via The Mises Institute,

In recent years, it seems that the nation’s CEOs and billionaires are increasingly willing to drop the pretense that they are politically neutral entrepreneurs who simply want to go about their business.

Last week, for example, more than a hundred CEOs met to plot ways to punish the people of Georgia by “stopping investments in states” that pass laws unapproved by the billionaire class.

This comes in the wake of a decision by Major League Baseball—a collection of billionaire-owned sports teams—to punish residents of Georgia for the fact a tiny number of politicians there passed legislation designed to lessen voter fraud. In retaliation, MLB decided to move the league’s all-star game so as to deny the residents of Atlanta the economic benefits of hosting the game.

This comes only a few years after Apple CEO Tim Cook led a corporate campaign to boycott Indiana after Cook and Marc Benioff (the CEO of Salesforce) demanded the people of Indiana be punished. This was because the Indiana legislature passed a law which some billionaires decided was insufficiently pro-LGBT.

These examples, however, constitute only a small and relatively innocuous part of the political scheming and lobbying in which powerful CEOs, billionaires, and investors routinely engage.

Certainly, wealthy CEOs are happy to throw their weight around in pursuit of social policies they like. But while the CEOs’ calls for boycotts and retribution against entire populations of various states makes for good headlines and talk radio, the billionaire class inflicts far more damage on ordinary Americans through other means. 

It is not unusual to find large corporate interests like big banks, Silicon Valley firms, and Wall Street investors calling for a wide variety of policies which transfer wealth from the general public to the well-lined pockets of the monied classes. These can include monetary policies that benefit the wealthiest Americans, as well as tax policies and regulations that favor large well-established firms at the expense of everyone else.

Unfortunately, this is nothing new, and it has always been the case that well-heeled pressure groups attempt to turn their financial resources into political power.

Free Markets vs. the Plutocracy

The potential danger of this situation was not lost on the classical liberals (i.e., the libertarians) of generations past, who opposed “the privileged” among the wealthy who sought to exercise political power.

Specifically, it was the Jeffersonians, the Jacksonians, and other advocates of free markets and laissez-faire who attacked these monied groups under a variety of names. Names like “stock jobbers,” the “new aristocracy,” the “scrip nobility,” and “the plutocracy” have all been employed to draw attention to a wealthy elite which manipulates Congress and the central bank in schemes of economic exploitation.

The Classical Liberals and Economic Exploitation

This language of “exploitation” might strike some readers as odd. Unfortunately, a certain naïve view of social classes has become popular among some conservatives and libertarians who think that that the concept of “class warfare” was invented by the Marxists. Moreover, some even insist that the wealthy classes pose no threat to political or market institutions, and that the wealthy seek only to mind their own business.

But, as historian Ralph Raico has explained, the idea of exploitation of one class by another was, in fact, pioneered by the classical liberals. It was these liberals who well understood that the power of the state could be harnessed by one group for the purposes of extracting resources from another group. Left to itself, of course, the marketplace does not foster exploitation, as market activities are voluntary. Once the state is involved, however, the coercive power of the regime changes the equation. The key to success in exploiting others lays in harnessing the power of the state to carry out the exploiters’ schemes. The wealthy have never been immune to this temptation.

We find these views in an early form in America in the thinking of the Jeffersonian theorist John Taylor of Caroline. Taylor decried the urban investor class that sought to manipulate the new nation’s financial policies to serve this rising plutocracy’s own ends. Taylor, according to Raico,

was outraged by what he saw as the betrayal of the principles of the American Revolution by a new aristocracy based on “separate legal interests,” the bankers privileged to issue paper money as legal tender and the beneficiaries of “public improvements” and protective tariffs. American society has been divided into the privileged and the unprivileged by this “substantial revival of the feudal system.”

The threat of this new “aristocracy” had certainly not lessened by the 1830s, when the Jacksonian William Leggett pointed out that the US had attained its own homegrown exploiter class to rival the haughty ruling classes of the Old World. Referring to the ostentatious palaces erected by the wealthy elites of Genoa, Leggett asked,

Is there no parallel for it in our own [country]? Have we not, in this very city, our “Street of the Palaces,” adorned with structures as superb as those of Genoa in exterior magnificence, and containing within them vaster treasures of wealth? Have we not, too, our privileged orders? Our scrip nobility?1 Aristocrats, clothed with special immunities, who control, indirectly, but certainly, the political power of the state, monopolise the most copious sources of pecuniary profit, and wring the very crust from the hard hand of toil? Have we not, in short, like the wretched serfs of Europe, our lordly masters, “Who make us slaves, and tell us ‘tis their charter?”

For Leggett, the answer to all of this, of course, was yes. To see this new class of plutocrats, Leggett observed, one need only “walk through Wall-street.” Leggett went on to suggests that if anyone “asks concerning the political power” of these Wall Street elites,

he will ascertain that three‐fourths of the legislators of the state are of their own order, and deeply interested in preserving and extending the privileges they enjoy. If he investigates the sources of their prodigious wealth, he will discover that it is extorted, under various delusive names, and by a deceptive process, from the pockets of the unprivileged and unprotected poor. These are the masters in this land of freedom. These are our aristocracy, our scrip nobility, our privileged order of charter‐mongers and money‐changers!

Plutocrats or Private Entrepreneurs?

On the other hand, the great libertarian sociologist William Graham Sumner was careful to note that not all wealthy people are plutocrats. “[W]e must make some important distinctions,” Sumner writes. “Plutocracy ought to be carefully distinguished from ‘the power of capital’…. A great capitalist is no more necessarily a plutocrat than a great general is a tyrant.” In other words, the plutocrats are not simply the factory owners who are on the receiving end of Marxist claims that all capitalists necessarily exploit their workers.

Rather, according to Sumner, the plutocrat is something very specific. Modern plutocrats “buy their way through elections and legislatures, in the confidence of being able to get powers which will recoup them for all the outlay and yield an ample surplus besides.”

That is, plutocrats are political operatives who employ the power of the state to accomplish political and financial ends. Moreover, the plutocrat

is a man who, having the possession of capital, and having the power of it at his disposal, uses it, not industrially, but politically; instead of employing laborers, he enlists lobbyists. Instead of applying capital to land, he operates upon the market by legislation, by artificial monopoly, by legislative privileges; he creates jobs, and erects combinations, which are half political and half industrial … 

Today’s Plutocracy

So, who are the plutocrats of today?

Certainly, this group includes those who seek to blackmail state legislatures with boycotts and pressure tactics. But we find plutocrats using more subtle tactics as well.

For example, Amazon corporation now supports raising the minimum wage. This may seem like some great populist and magnanimous move on Amazon’s part. But it is just what we’ve come to expect from plutocrats. In fact, Amazon’s senior managers know that it can endure paying a higher wage than can Amazon’s smaller and less capitalized competition. Smaller operations have fewer financing options to weather a cash flow crunch and are thus more financially fragile. Basically, Amazon is likely to support a wide variety of government regulations, because government regulations are anticompetitive. Amazon, of course, being the dominant firm, is motivated to crush the competition through state action. This is partly why Jeff Bezos came out in favor of a hike in the corporate tax. He’s just hoping to stay on top, and while a tax hike is unfortunate for him, it’s even worse for the competition that Bezos hopes to destroy through his political lobbying. 

We see similar forces at work when plutocrats like Mark Zuckerberg call for more regulation of social media companies. Zuckerberg is speaking as head of the industry’s largest, most capital rich, and most dominant firm. Now that he’s on top, he’s fine with more regulation, which will hurt small competitors most. (Social media companies, of course, are also happy to buy favors from the regime by deleting user comments and punishing users who annoy regime operatives.)2

But perhaps the most subtle form of exploitation practiced by the plutocrats occurs through the central bank, and this is why the Jeffersonians and Jacksons focused so much on the role of the central bank throughout the nineteenth century. Leggett, after all, is known for calling for “the separation of bank and state.” 

The advantages offered to plutocrats through central banks have been similar for more than two centuries, but in today’s world these advantages can be seen in the fact that central banks are now in the business of pushing up stock prices for the benefit of Wall Street and large public companies. Thanks to the “Greenspan put,” for example, the Federal Reserve has now for three decades been in the business of propping up stock prices. Now, we barely even notice when stock prices soar upward even during periods when millions of workers are laid off and national production collapses. “Stock prices must always go up” is essentially now federal policy. This in itself further helps explain why the plutocrats so often come out in support of higher taxes and a bigger regulatory state. As David Stockman observed, people like Bezos and the Wall Street and Silicon Valley elite: 

have been made so insanely rich by the Fed’s egregious stock market inflation that they no longer care if their businesses are inconvenienced or even deeply harmed by schemes like the Biden [tax hikes]; and, worse still, have no idea about how real, sustainable wealth is generated or that free market prosperity is not at all a sure thing when the state becomes an unhinged wrecker of honest money, fiscal rectitude and financial discipline.

Why worry too much about taxes or regulation when you know you’ll be bailed out by the Fed? Stockman continues:

By and large these new titans are not geniuses. They are bubble riders who were in the right place at the right time. And after years of the Fed’s massive inflation of financial asset prices they have become totally corrupted—politically, intellectually and otherwise.

In all likelihood, they don’t even know how they got rich. But since they are rich, they conclude they must be very smart, and therefore they’re now entitled to run the country; to punish people who live in red states, and run lesser business owners into the ground using the power of the state. 

The nation’s billionaires and megacorps benefit from central banking schemes in other ways as well. Ultralow interest rate policies mean an endless tsunami of cheap debt. Nonetheless, the focus has remained on lending to the lowest-risk firms, which means there’s far less financing available to smaller start-ups and other riskier enterprises. Low rates also mean financially conservative small-time investors can only earn very small returns on their investments. Generally, it’s only the wealthy who can indulge in high-risk yield chasing, which further enriches the wealthy as others stagnate. The end result is more liquidity for the plutocrats while the newcomers fight over scraps.

The Fed now buys corporate debt, and for more than a decade has been buying up assets in order to prop up what would have been the ailing portfolios of the nation’s megabanks and investment firms. The Fed’s monetary inflation leads to immense amounts of asset inflation not only in stocks, but in housing prices as well. This impoverishes first-time home buyers and renters, but benefits those who are already wealthy—and own lots of these assets.

It’s all part of a well-established scam that the laissez-faire liberals identified long ago. The plutocrats hope to keep it going forever.