Billionaires Shouldn't Exist
That's not socialism—it's free market capitalism
I’m always amazed when people act like “billionaires shouldn’t exist” is some kind of radical communist or left-wing statement.
It’s not. Rather, it's pure capitalism.
In a truly competitive market, outsize profits would be competed away by new entrants. No business could charge exorbitant prices.
That's not socialism, that’s capitalism 101. That’s the way it’s supposed to work. At least according to how it's described in the economic textbooks.
Excessive profits are a sign of market failure, not success. A billionaire cannot exist in a truly competitive market. The only way a billionaire can exist is if a market has failed in some way. That's why every billionaire represents a market (or a policy) failure. The people who defend the existence of billionaires as some kind of capitalist success story have it exactly backwards.
As Matt Stoller writes:
...if you look at the top ranks of the Bloomberg billionaire index, you’ll notice that nearly all of the leaders are people who own a corporation with substantial amounts of market power in one or more markets. Billionaires use market power to extract revenue the way that a tollbooth operator does. If you want to drive on a road, you have to pay for the privilege. It costs the tollbooth operator nothing, he/she just has a strategic chokepoint for extraction. Billionaire Warren Buffett, for instance, has such a ‘tollbooth’ strategy for investing, though he uses the term ‘moat’ because it sounds charming and quirky rather than rapacious. Put another way, the Bloomberg billionaire index [is] a list of the biggest tollbooth operators in the world.
What is a billionaire? (BIG)
Similarly:
The vast majority of the world’s billionaires have not become rich through anything approaching ‘productive’ investment. Oxfam has showed that, approximately one third of global billionaire wealth comes from inheritance, whilst another third comes from ‘crony connections to government and monopoly’...
The greatest single source of wealth on the Sunday Times Rich List is property...But more of this property wealth comes from speculation than development. Over the last forty years, as property prices have boomed, the wealthy have simply bought up the nation’s housing stock and waited for prices to rise.
The returns they have generated are not productive—rising house prices do not create jobs or expand the economy’s potential. Instead, those who own all the property are able to use their control over a scarce and invaluable resource to extract economic rents (unproductive payments from non-owners to owners) from working people.
Other forms of wealth that dominate the Sunday Times Rich List—finance, commodities, energy—all rely on the ability of the wealthy to monopolise a resource—credit, diamonds, oil—and use their monopoly position to extract economic rents. Most of those who call themselves ‘industrialists’ also benefit from monopoly rents generated through intellectual property rules, resource rents or other barriers to entry.
You do not become a billionaire through labour. You become a billionaire through inheritance, corruption or economic rents—or, in most cases, some mixture of all three. There is an immutable and impermeable distinction between people who live off work and those who live off wealth.
Why on Earth Shouldn’t People Be Able to Be Billionaires? (Novara Media)
According to a popular comment:
If you wanted to earn $1 Billion you could break it down by dollars per hour. Let's say you worked for some obscene amount of money, say $2000/hour, and worked full time, 40 hours per week, 52 weeks per year. You could have started working your full-time $2000/hour job when they signed the Declaration of Independence in 1776, and you still wouldn't have made $1 Billion yet today.
To have as much wealth as Jeff Bezos you would have to have started working like this since the last Ice Age—25,000 years ago. It’s hard to see the social benefit of this.
John D. Rockefeller, Bill Gates, Jeff Bezos and other billionaires made their money the same way—by achieving monopoly power and driving all other competitors from the field. By erecting barriers to entry. By forcing suppliers into restrictive contracts. By using their power in one economic sector to strongarm others. By getting generous intellectual property laws passed. By vertical and horizontal integration. By network effects. By using their disproportionate market share to crush rivals. By taking advantage of decades of public research and investment funded by taxpayers. By utilizing tax avoidance strategies. By corporate welfare. By busting organized labor and socializing risk.
Amazon, for example, gained it's power by leveraging massive amounts of financial capital available only to it—not to expand it's business—but instead to operate for years operating/selling at a loss in order to choke out competitors and establish a monopoly. This access to capital was fueled by the expectation of an eventual market valuation that would offset those losses.
Once it achieved this objective, it could then increase prices enough to become profitable. In other words, it deliberately lost money for years to outlast its rivals who had less access to capital, buoyed by a mountain of debt lent with the expectation that it would be more than paid back once they achieved market hegemony. In the early years of the business, they also escaped having to charge sales taxes for their products. Amazon also used its dominant position to gain control over much of the Internet's commercial infrastructure such that even its rivals are now dependent on it. These types of maneuvers were following the practices pioneered by John D. Rockefeller—the world's first billionaire. That's why Amazon’s stock price is so high, which is where Bezos gets the money to buy the Washington Post, countless mansions, yachts big enough require historic bridges to be dismantled, and penis-shaped rockets for joyriding into space.
That's why every billionaire represents a policy failure. None of this can be intellectually justified by appeals to capitalism or free markets as portrayed by even the most staunchly libertarian economic textbooks.
These billionaires made their fortunes by managing to subvert the free market—to rig entire market sectors in their favor and drive out the competition. Why, then, do the self-procalimed defenders of free market capitalism claim that the existence of billionaires is somehow a validation of their ideology? Do they even know what the hell capitalism is?
The "classical liberals" who are supposedly the intellectual godfathers of today's libertarians and neoliberals envisioned free markets as ultimately leading to more equality, not less. They felt it would lead to a dispersal of concentrated, unaccountable power, not to an unprecedented concentration of it. In their day, wealth and power were disproportionately held by a landed gentry whose hereditary wealth and status were preserved and passed down via their ownership and control of the most valuable asset in the agrarian economy—land. Because they held the reins of political power, they used it to advance their own interests and to squelch their rivals, which often included things like putting unnecessary restrictions on trade and favoring government-sanctioned monopolies (which they happened to own).
In those days, independent merchants and manufacturers were the upstarts, not the epicenter of political power. They were seen as rivals to the entrenched power of the elites. It's hard to imagine that situation in our world today, dominated as it is by big business and finance. But the fact is that classical liberals writing over a hundred years ago saw markets as a means of diluting the power of the aristocracy, not simply recreating a new and even more sociopathic version of it. This is pretty obvious if you read what they actually wrote. For example:
“Landlords... grow richer, as it were in their sleep, without working, risking, or economizing.”
“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce...”
“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers.”
“When profit diminishes, merchants are very apt to complain that trade decays; though the diminution of profit is the natural effect of its prosperity, or of a greater stock being employed in it than before.”
“The best state for human nature is that in which, while no one is poor, no one desires to be richer, nor has any reason to fear being thrust back by the efforts of others to push themselves forward.”
“All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”
At times, Smith could even sound like Karl Marx, writing:
In the progress of the division of labor, the employment of the far greater part of...the people, comes to be...confined to a few very simple operations...of which the effects...are perhaps always...very nearly the same...He naturally...and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgement concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging...It corrupts even the activity of his body...His dexterity at his own particular trade seems, in his manner, to be acquired at the expense of his intellectual, social, and martial virtues...
Would these intellectuals be rushing, then, to swoon over the likes of Jeff Bezos, Bill Gates, Richard Branson or Elon Musk? I don't think so. Rather, they would recognize the existence of these billionaires for what it is—a failure of the kind of economy that they championed in their writings. The massive corporate monopolies of their own era such as the East India Company were singled out for criticism, not praise. Such entities were seen as enemies of the free market, not exemplars.
[Adam] Smith was scathingly critical of the wealthy’s disproportionate power over government policymaking. He complained about the tendency of the rich to shirk tax obligations, unfairly passing tax burdens on to poor workers. He heaped scorn on government bailouts of the East India Company. He thought dirty money in politics was akin to bribery, and that it undermined the duty to govern impartiality...
Adam Smith offered advice for how societies should handle the rich: he calls on legislators not to put the interests of wealthy monopolists ahead of the public welfare. Whenever new government legislation is proposed by businessmen, Smith suggests the government should treat the new proposal with “not only with the most scrupulous, but with the most suspicious attention”. The handouts to the rich that he complains about in Wealth of Nations have never entirely disappeared. Instead, a language of “free trade” has obscured the government’s role in favouring the wealthy…
Smith did talk about the invisible hand. But he also wrote about the “invisible chains” that structure people’s lives. He and his revolutionary friends understood that wealth inequality could become a type of invisible cage. He taught his readers a simple lesson: keep the power of the rich in check.
The historical case for abolishing billionaires (The Guardian)
Wages, at the same time, should rise with increased wealth. On this basis, Smith defends adequate labor wages, which had to be at least sufficient to provide the “necessaries,” covering lodging, food and clothes, the latter tailored to middle-class comforts. This baseline appears minimal, yet it provides for more than is covered by the contemporary minimum wage…
Moreover, high wage levels should occur naturally. Wages are only lowered artificially, through state intervention, because of the sophistry of merchants and manufacturers who are much more adroit in manipulating legislatures to pass laws in their favor.
Moreover, employers enjoy a bargaining advantage over workers and can coerce them to accept worse terms, because they need individual workers less than individual workers need employment. It is no surprise Marx was an admirer. Wages are not the simple product of supply and demand in Smith; bargaining asymmetries are key.
Adam Smith and inequality (London School of Economics)
Of Smith's core philosophy, the economic historian Robert Heilbroner wrote:
Even today—in blithe disregard of his actual philosophy—Smith is generally regarded as a conservative economist, whereas in fact, he was more avowedly hostile to the motives of businessmen than most New Deal economists.
The transformation of Adam Smith into an apologist for Chicago School and libertarian economic policies was a deliberate undertaking, as descibed in a new book. There’s even a think-tank named after him dedicated to, “[promting] neoliberal and free market ideas through research, publishing, media commentary, and educational programmes.” Classical liberalism was weaponized in the service of corporations and billionaires, in contrast to what Smith and other classical liberals actually believed. Would Smith have defended a system that creates individuals whose wealth rivals that of some small nations?
It's hard to believe that Adam Smith—who in his day was known primarily as a moral philosopher—foresaw the end result of markets and trade as the creation of a new class of individuals who possessed more wealth, power and status than the kings, queens, princes, sultans, pashas and emperors of his own day. Or more wealth than even the god-kings of antiquity like the pharaohs who built the pyramids and erected monumental statues of themselves.
Yet that's exactly what happened.
Just 62 billionaires—a number small enough to comfortably fit inside a ballroom— collectively own as much as wealth as half of humanity. The richest 0.00025% of Americans owns more wealth than the bottom 150 million of their countrymen. Billionaire wealth has doubled in the past ten years. Their personal whims dictate the political agenda of sovereign nations. They pay less taxes than the middle class. They take over essential functions of the state. They bankroll political campaigns. They own the media. They routinely attack labor unions. They employ a lavish wealth defense industry to protect and enhance their fortunes and disseminate propaganda on their behalf. They lead lives of sybaritic excess and unbridled hedonism—a far cry from the so-called “Protestant Ethic” which emphazied austere self-discipline, unostentatious modesty, commuitarianism and thrift.
Simply put, they have become a modern aristocracy.
Was this the end result of capitalism as envisioned by classical liberals such as Adam Smith, David Ricardo, John Stuart Mill and others?
I highly doubt it.
Why, then, do so many self-proclaimed advocates for free markets and trade celebrate the existence of such individuals? Why do they stubbornly defend their ability to accumulate wealth without bound? Why do they rationalize their disproportionate control over economic resources and political affairs? Why do they vehemently oppose even marginally higher taxes on their incomprehensible fortunes? Why do they invariably portray them as market successes rather than as market failures?
Is it really capitalism they are defending?
Or is it power?
The people defending the existence and prerogatives of the billionaire class aren't defending any vision of capitalism recognizable to the thinkers they claim to revere. In fact, they are defending its inverse. Rather than free markets, what they are actually defending is power—unchecked, unbridled, unelected, unaccountable power. In other words, they are not “classical liberals” at all—rather, they are authoritarians.
Two-hundred and fifty years ago, these same people would be defending the existence and prerogatives of the nobility because for them it is really all about maintaining and enhancing hierarchical power. They only pretend to care about things like capitalism, free markets, and trade; but it's really just a smokescreen. They don't actually give a damn about any of those things, because if they did they would be the loudest voices in the room denouncing the existence of the billionaire class alongside people like Bernie Sanders, Alexandria Ocasio-Cortez, and other members of the so-called "radical left." What they really want is for some people to have power over others.
Ironically, it is those who are routinely derided as "socialists" who actually understand how free markets are supposed to work.
By all means, defend the prerogatives of billionaires all you like. Defend their supposed "right" to amass unlimited personal fortunes. Defend their right to pass down dynastic wealth in perpetuity. Defend their ability to pay a paucity in taxes. Defend their outsized ability to influence the democratic process and dismantle the state. Defend their ability to squash the competition. Defend their ability to control the narrative. Just don't pretend you are an advocate of "free markets" or call yourself a "classical liberal" in any sense of the term, because you are not defending capitalism or markets. You are defending droit de signeur.
You can have competitive, free markets or you can have billionaires, but you cannot have both. That's why the people saying “billionaires shouldn't exist” are the true champions of free markets.
Billionaires shouldn't exist.
Period.
Here’s a different spin from the radical political magazine Teen Vogue: Billionaires Should Not Exist — Here’s Why
EDIT: Cory Doctorow on The Billioniare’s Case Against Billionaires
Good one. I am surrounded by "libertarians" and I find myself in a constant struggle to understand their perspective which seems at once libertine and also oddly repressive. Yes, to legalizing all and sundry but with a tacit acceptance, even fawning over, already existing wealth and power. This essay highlights some important points that shed real light. There are very few really working markets, you do not become extremely wealthy via labor or brilliance, and the far left understands markets better than the libertarians who generally argue for them.
Michael Hudson does a good job of talking about traditional liberalism and how poorly it is reflected in the current "capitalist" economy. My worry is that no matter how well regulated market driven economies seem to create monopolies with all that entails. I think we would need to move to a primarily non-market system to avoid this. https://michael-hudson.com/2016/03/the-inversion-of-classical-economics/