How the Rich Rule

By Sheldon Richman

ERNEST HEMINGWAY: I am getting to know the rich.

MARY COLUM: I think you’ll find the only difference between the rich and other people is that the rich have more money.

Irish literary critic Mary Colum was mistaken. Greater net worth is not the only way the rich differ from the rest of us—at least not in a corporatist economy. More important is influence and access to power, the ability to subordinate regular people to larger-than-human-scale organizations, political and corporate, beyond their control.

To be sure, money can buy that access, but only in certain institutional settings. In a society where state and economy were separate (assuming that’s even conceptually possible), or better yet in a stateless society, wealth would not pose the sort of threat it poses in our corporatist (as opposed to a decentralized free-market) system.

Adam Smith famously wrote in The Wealth of Nations that “[p]eople of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Much less famously, he continued: “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”

The fact is, in the corporate state government indeed facilitates “conspiracies” against the public that could not otherwise take place. What’s more, because of this facilitation, it is reasonable to think the disparity in incomes that naturally arises by virtue of differences among human beings is dramatically exaggerated. We can identify several sources of this unnatural wealth accumulation.

A primary source is America’s financial system, which since 1914 has revolved around the government-sponsored central banking cartel, the Federal Reserve. To understand this, it must first be noted that in an advanced market economy with a well-developed division of labor, the capital market becomes the “locus for entrepreneurial decision-making,” as Walter E. Grinder and John Hagel III, writing within the perspective of the Austrian school of economics, put it in their 1977 paper, “Toward a Theory of State Capitalism: Ultimate Decision-Making and Class Structure.”

Grinder and Hagel, emphasizing the crucial role of entrepreneurship in discovering and disseminating knowledge and coordinating diverse production and consumption plans, write: “The evolution of market economies … suggests that entrepreneurial activity may become increasingly concentrated within the capital market as the functional specialization of the economy becomes more pronounced.”

That sounds ominous, but as long as the market is free of government interference, this “concentration” poses no threat. “None of this analysis should be construed as postulating an insidious process of monopolization of decision-making within the non-state market system,” they write.

Market factors [that is, free and open competition] preclude the possibility that entrepreneurial decision-making could ever be monopolized by financial institutions. … The decision-making within the capital market operates within the severe constraints imposed by the competitive market process and these constraints ensure that the decision-making process contributes to the optimum allocation of economic resources within the system.

All bets are off, however, when government intervenes. 

Read the rest here.