Bill Gates and Warren Buffet have encouraged wealthy families to give half their wealth to charities, and many have done so. One year into the effort, Buffet announced that forty families have agreed to pledge more than half their wealth to charity. Emblematic of our current age, most of these families have made their money in the finance industry.
A Different Time in America
Once upon a time in America there was an entrepreneurial class that did more than shuffle pieces of paper. They produced real things. Historians originally referred to this group as “Robber Barons” because the large fortunes they amassed involved ruthless and sometimes uncompetitive business practices. While some made their fortunes in finance, the overwhelming majority laid the foundation for America’s 20th century industrial dominance:
- John Jacob Astor (real estate, fur)
- Andrew Carnegie (steel)
- Jay Cooke (finance)
- Charles Crocker (railroads)
- Daniel Drew (finance)
- James Buchanan Duke (tobacco)
- James Fisk (finance)
- Henry Morrison Flagler (railroads, oil, the Standard Oil company)
- Henry Clay Frick (steel)
- John Warne Gates (steel)
- Jay Gould (railroads)
- Edward Henry Harriman (railroads)
- Milton S. Hershey (chocolate)
- Mark Hopkins (railroads)
- J.P.Morgan (banking, finance, steel, industrial consolidation)
- Henry B. Plant (railroads)
- John D. Rockefeller (Standard Oil)
- John D. Spreckels (San Diego transportation, water, media)
- Leland Stanford (railroads)
- Cornelius Vanderbilt (railroads)
These individuals were also the backbone of American philanthropy. For example, think of: Carnegie (libraries); Rockefeller (University of Chicago, the Rockefeller Foundation) and Leland Stanford (Stanford University). The Robber Barons not only focused on industrial wealth creation. They were equally concrete and focused in charitable giving that provided tangible benefit to American institutions and society.
In contrast, the Gates Foundation focuses on world health concerns, a worthy but certainly more amorphous goal. As an aside, the Gates-funded vaccination and AIDS treatment programs have received criticism for singular focus on certain diseases to the derogation of comprehensive health care and diversion of important medical resources. Few of the Gates Foundation initiatives benefit Americans.
The Over Financialized Economy
The wealthy donors signing on to the pledge are one more reminder of the over financialized American economy. See The Mirage of a Financialized Economy; The People v. Wall Street. Today’s fortunes were earned at the expense of the industrial economy, rather than in pursuit of its success. Two recent commentaries support the deleterious effect of an economy over-focused on the financial:
Boston-based asset manager Jeremy Grantham in Summer Essays criticizes his own profession:
“In 1965, 3% of GDP that was made up of financial services [and that] was clearly sufficient to the task, the proof being that the decade was a strong candidate for the greatest economic decade of the 20th century. We should be suspicious, therefore, of the benefits derived from the extra 4.5% of the pie that went to pay for financial services by 2007, as the financial services share of GDP expanded to a remarkable 7.5%.
This extra 4.5% would seem to be without material value except to the recipients. Yet it is a form of tax on the remaining real economy and should reduce by 4.5% a year its ability to save and invest, both of which did slow down. This, in turn, should eventually reduce the growth rate of the non-financial sector, which it indeed did: from 3.5% a year before 1965, this growth rate slowed to 2.4% between 1980 and 2007, even before the crisis.”
Professor Steve Keen, an Australian economist and author of Debtwatch believes that the percentage of GDP going to the financial sector should be even lower:
Because of that debt level, bank profits have gone through the roof as a share of GDP. Back before we had a financial crisis—when debt levels were far lower than today—so too were bank profits as a share of GDP. A sustainable level of bank profits appears to be about 1% of GDP. See Bank Profits a sign of economic weakness, not health
Bring Back the Robber Barons
We need a political and economic re-set button. The Obama and Bush Administrations have attempted to uncritically favor the financial sector through loan guarantees, TARPs and other artifices. No one has asked the critical question of why we are favoring this sector that has absorbed a disproportional share of GDP at the expense of a productive reality-based economy that makes real things and employs real people.
No wonder unemployment has remained stubbornly high, and the economy is poised to enter a “double dip” recession. Perhaps we need a new class of wealthy people focused on creating real wealth and jobs in America. Maybe it is time for some twenty-first century Robber Barons.
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Related posts:
- Memes of the Rich and Famous
- Unemployment and the Fall of Labor
- This Dimon Doesn’t Have it Rough Enough
- The People v. Wall Street
- The Meal Was Great…Part II
Tags: Charity, financialization, Gates Foundation, Jeremy Grantham, Robber Barons, Steve Keen, Warren Buffet
