How the super-rich made their millions
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Behind every great fortune lies a crime, said Balzac. What crime lies behind today’s super-rich? You can tell a leopard by its spots. So can you tell the nature of a boom by the sort of people who are its fattest cats? It is not the goodwill of the baker that puts bread on a man’s table. Thank god. Otherwise, we’d all go hungry. Nor does the busboy bus for the benefit of mankind. Instead, everyone sweats and toils for reasons of his own. This insight – that people can pursue their own interests and in so doing improve the lot of everyone – is the central insight of all modern economists who aren’t idiots. The theory is simple enough; a man bakes bread not to put bread on others’ table, but to put it on his own. That others have bread to eat too is merely a happy consequence. Likewise, the electrician doesn’t fix your wiring because he likes to see sparks fly. He has to earn a living, and he does it by providing something useful to others.
The symmetry of it is elegant. The morality of it is appealing. Do unto others and they will do unto you. And the more you do for others… the more you can expect them to do for you. That is why a properly functioning economy does seem to deliver something close to rough justice. Henry Ford brought the benefits of automobile transportation to the masses. He deserved to make a lot of money. Andrew Carnegie provided the nation with steel. John D. Rockefeller rolled up and rationalised an early market in oil. These tycoons of yesteryear deserved what they got.
Just look along the ‘Gold Coast’ of Connecticut. There, you will find where the kings of industry and commerce built their mansions. In Greenwich alone are the old homes of the Simmons family, who made a fortune in mattresses; the Phelps Stokes family, who made their money in copper products; the Milbanks of Borden Condensed Milk, and ‘Sugar King’ Henry O. Havemeyer. Their grand houses were testament to their grand contributions; these are the people who built the wealth of America.
But now a new bunch of kings has taken its place in Greenwich. This Christmas season brought out a spectacular light show at the waterfront home of Paul Tudor Jones, with tens of thousands of lights. Mr. Jones is a very rich man. But he is not a king of industry. He does not bring milk to the masses, nor mattresses to rest their weary bones. He’s a Bubble King; managing a $15bn hedge fund.
Here in London, one single employee of Barclays Capital made history last year with his pay cheque. Roger Jenkins took home between $70 and $140m. Jenkins – nicknamed ‘Dodger’ – runs a part of the bank… the part that does ‘structured finance’. We turn to this week’s The Business for an explanation: “Jenkins’ division devises complex structures that are designed to improve the profitability of transactions carried out by other parts of the bank. While the transactions can take many forms, their structures have one common aim – to reduce the tax liability of clients”. What Dodger dodges is taxes. Noble work. But not exactly the stuff of which economic booms are made. Overall, the economy is no richer as a result of his work.
America’s answer to Roger Jenkins is Lloyd Blankfein. The Goldman Sachs man took the CEO post of the firm after Hank Paulsen went on to greater glory at the Treasury Department. In the six months from the time he took the job until the end of the year, he is reported to have earned $53.4m. Let’s see, that is about $9m per month… or about $400,000 every working day. If they are so richly paid, says the theory of modern capitalism, they must richly provide.
Mr. Jenkins and Mr. Blankfein do not add in any appreciable way to the world’s wealth. Instead, they merely move it around – from middle- and lower-class taxpayers to the super-rich… from householders to speculators… and from the future to the present (by loading up the world with debts that will have to be paid off later on).
But it is not a free-market system. A free market presumes that money itself is an honest measure. Otherwise, all the “information” that free prices give is distorted and untrustworthy. Since 1995, the US money supply has risen at about 10% a year – the world’s supply of goods and services only about 3%. While the wages of most people have been held down by globalised competition, the few with most immediate access to this pool of new liquidity have made fortunes. They’ve not added to the world’s wealth. They’ve merely redistributed it. To themselves. The central authorities have kept money policy too loose for too long. They’ve created a boom so unnatural and grotesque that even its own mother wouldn’t recognise it.
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