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Part One
The Importance of Private Capital
The role of private capital is poorly understood, both by Americans in general and also by the wealthy Americans who own that capital. Most wealthy families take the stewardship of their capital seriously, to be sure, seeing stewardship as the discharge of an important duty to their families. But beyond the importance of wealth to its owners, substantial families can legitimately wonder if private wealth is a positive or negative feature of American life. Families who work hard to maintain and grow their wealth often see their work as an intensely private activity existing outside of, unrelated to, and largely irrelevant to the major thrusts of U.S. societyâa kind of fringe element in the American democracy. Nothing, however, could be further from the truth.
The building of wealth, the management of wealth, and the deployment of wealth are activities that lie at the very heart of what has made America great. Abundant private wealth is what distinguishes America from other free market democracies. It is the lure of wealth that encourages Americans (and would-be Americans) to develop and implement the ideas that drive contemporary civilization, whether those ideas are in business, science, the arts, education, entertainment, or almost any other activity that we value as human beings.
And it is the creative deployment of wealth that enriches American society far beyond the dreams of other civilizationsâincluding other modern, postindustrial democracies. These two characteristics of wealthâits ability to bring out the competitive best in citizens and its enriching qualities that permeate societyâare at the center of the special American version of free market democracy, and they are largely responsible for America's preeminence. Lying between these two aspects of wealth, and the linchpin that holds them together, is the management of private wealth. If wealth were simply created and then dissipated, it would be of little use to its owners. Far more important, it would be of little use to society.
Parts Two and Three of this book are focused particularly on the management of wealthâon the linchpin. But in Part One, I focus on the first two characteristics of wealth. Thus, Chapter 1 emphasizes how America differs from its free market cousins in the continuing encouragement of its citizens to pursue wealth. As a result, American competitiveness is the wonder of the world. In Chapter 2, I turn to the deployment of wealthâthe creative use of private capital that gives this book its title.
The ultimate point of Part One is to demonstrate that wealthy families lie at the very center of the American experimentâsomething that is very poorly understood. Private capital is an essential, even a definitive aspect of the American version of democratic capitalism. Without private capital on a grand scaleâthe lure of accumulating it and the creative use of itâit would be impossible to imagine America.
Wealthy families need to be both proud of what their families have accomplished and proud of what their capital can and will continue to accomplish for America and for the world. Private capital has made America the most vigorous, the most creative, the most diverseâin short, the most powerful society ever organized. And given the increasingly feeble state of other liberal societies around the world, it is the vigor of America, and only the vigor of America, that offers hope for freedom and democracy anywhere on the globe. If America declines, freedom and democracy will have no champion worthy of the name. And the best way to ensure the decline of America is to reduce the role that private capital plays in our remarkable success.
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Chapter 1
Wealth in America
The Indispensable Rich
Every man thinks God is on his side.
The rich and powerful know He is.
âJean Anouilh
Few Americansâincluding few wealthy Americansâhave given much thought to the role that wealth plays in the American polity. We tend to take it for granted that America always has and always will consist of wealthy families, middle-income families, and poor families. And when we do think about it, most Americansâincluding most wealthy Americansâtend to imagine that wealth constitutes, at best, a necessary flaw in the way the American democracy should work. Perhaps, we concede, the lure of wealth is necessary to encourage people to work hard, to come up with and commercialize new ideas, to build the companies that provide employment. But still and all, in a society where we are all created equal, there is something incongruous about the fact that some people have so much more money than others.
If the wealthy constitute a flaw in the way American society should work, why should we tolerate it? If we really put our minds to the problem, couldn't we come up with a system that offered similar incentives but that didn't produce wealthy families in such profusion?
What is it, then, that accounts for the persistence of wealthy families in the American democratic republic? Why do we tolerate the rich, with their godlike influence over people and affairs, when it is abundantly clear that the wealthy, like everyone else, are not endowed with godlike wisdom in deciding how to wield that influence? Certainly it is apparent that the rich, whether they are dealing with their own companies, with politics and the affairs of state, with social and cultural issues, with charitable organizations, or even with their own families, have far more impact than other citizens, for good or ill. The rich are a bit like the gods of the Greeks or Romans: not omnipotent or all-seeing sages, but powerful, fascinating, mischievous creatures we don't completely understand but which we find riveting, annoying, alarming and, like it or not, essential.
Indeed, the wealthy, virtually alone in a democratic society, constitute a natural, unelected aristocracy. I say ânaturalâ not because there is anything fundamentally natural about wealthy aristocracies, but because the development of wealthy families is an organic by-product of the way we have chosen to organize our economic affairs in the United States. The American market economy is designed to pit individuals against each other in a free economic competition, the incentive to compete being the possibility of becoming rich. We believe that this sort of competition is most likely to lead to improved conditions for the broader society, including those who âloseâ in the competition to create wealth (the poor), and including those who refuse to compete at all: individuals who select professions that rarely lead to wealth, such as academics, social workers, nurses, artists, and so on. (Even these people compete for power and recognition in their chosen fields.) We can easily imagine societies in which wealth-creation activities would not be valued so highlyâcommunist, socialist and many primitive societies, for exampleâand in those societies different individuals would perhaps1 constitute the ânaturalâ aristocracy.
I say âunelectedâ because the wealthy are not selected by any representative body. They simply happen as the result of economic competition and opportunity, much the way great athletes simply happen when athletic competition and opportunities are made available. That's not to say that people who create wealth don't work enormously hard at it, just as great athletes work enormously hard at it. But no group of people sits down and conducts a vote to determine who the best athletes are going to be, and no one sits down to vote on who the wealthy are going to be. The same is true of great artists, musicians, writers, and so on. Rules that define excellence are established through complex cultural mechanisms, but thereafter individuals compete with each other and there will be winners, losers, and a great body of people in the middle who develop competence but not greatnessâas well, of course, as people who chose not to compete at all.
Most individuals in American society who possess influence on a scale equivalent to that of the rich actually have been elected in one way or the other. Politicians are the most obvious example, but union chiefs, university presidents, heads of large nonprofit organizations, corporate bigwigs, and even capos of crime families have all been âelectedâ by some body that is considered reasonably representative in those worlds. The governor of California, an elected official, is undoubtedly the most powerful individual in that state. But I could name eight or ten wealthy men (and two or three women) who would share top twenty billing for power-wielding in that biggest of American states, alongside a few elected officials and a few corporate CEOs. No one elected those men and women, but they made their fortunes and have used those fortunes in part to influence California affairs. Appalling as this might be to some, it is and always has been a fact of life in America.
I say âaristocracyâ because, as noted in the California example, the wealthy have power and influence far beyond that of other unelected centers of excellence: They represent an aristocracy in the precise meaning of the term.2 The difference between the wealthy and great athletes (or great artists, musicians, writers, etc.) is that the former end up, through the power of their wealth, with the ability to influence much of what we hold dear in our world, whereas the latter, except in rare instances, exercise little influence beyond their area of specialization. It is so natural to expect the rich to wield influence over important matters that we hardly stop to think about how unusual it is that one social subgroup should have been vouchsafed this influence. Why should wealth-creating skills be entitled to far greater influence than, say, the skills required to score consistently from the three-point line or the skills required to compose a piano concerto?
America didn't decide to organize a society that would produce wealthy familiesâfar from it. America organized a society that produces wealthy families as a by-product of an economic competition that is considered desirable. That by-product may have been anticipated, but it is not universally welcomed. Indeed, in a land where âall men are created equalâ it may easily be considered an unhappy by-product. Because the wealthy have unelected power and influence, must it not be the case that the wealthy have illegitimate power and influence? Do not the rich constitute a serious flaw in the way a democratic society should operate? Is it not, indeed, an important task of the democratic process to eliminate or minimize the disproportionate influence of any one group? And because there are ways to operate democratic republics without producing so many wealthy familiesâthe Scandinavian and most Western European societies are organized in this wayâmight not Americans be tempted to adopt those models as well? Certainly the persistence of the rich in a democratic society is at the very least incongruous.3
In this introductory chapter, I will argue that private wealth persistsâindeed, grows luxuriantlyâin the United States for reasons that are not only sound, but that go to the very heart of America's success in its competition with other civilizations. Wealthy families are not simply a minor pothole on the grand highway leading to uniform middle-classness in America. On the contrary, the production of private wealth is a crucial aspect of the singular success of the American experiment. Private wealth, as distinct from and as a counterweight to government wealth, is both central to and the principal symbol of America. Moreover, given America's special role among nations, America's wealthy families also play a central role in the evolution of other nations and of the prospects for billions of people worldwide.
Democracy and Capitalism
The apparent contradiction of private wealth in a democratic republic is best examined by viewing democracy in the only economic context in which it can flourish: a free market system. Largely capitalist economies can exist outside the context of democratic political systems (Singapore and, increasingly, China, are examples), but democratic political systems cannot exist outside the context of free market economies. We cannot be free politically but enslaved economically. The institutions of civil society that liberal democracies establish and protectâespecially private property and the rule of lawâenable extremely diverse populations to coexist and work together productively; they enable, in short, free civilizations to exist.4 Because this is the case, there will be consequences flowing from the economic system that would not necessarily be welcomed if the political system could somehow exist independent of its economic context: the production of wealth that is not evenly distributed is a principal consequence.
American democracy is, far more than elsewhere, intertwined with a capitalist attitude. The opportunity to pursue one's economic aspirationsâthe opportunity to become richâis inextricably a part of the American dream, a dream that captures the imaginations of the poor worldwide, as well as immigrants to America, our working poor, the lower middle classes, and aspiring middle-class families. Reinventing America to establish a society that prevented people from getting rich wouldn't hurt those who are already wealthy, but it would seriously damage the aspirations of the poor. An America that was no longer perceived as the land of opportunity would be an America essentially unrecognizable to most Americans, as well as to most non-Americans and most would-be Americans.
We are so used to the vigorous spirit animating America that it is difficult to keep firmly in mind how rare this spirit is, especially among our peer groupâthe largely Western5 postindustrial liberal democracies. It is worth our time to examine in some detail the nature of these societies, if only as an example of what America would look like without private capital to fuel its competitive spirit and to irrigate its exotic garden of ideas.
Capitalism and Its Contradictions
Karl Marx famously maintained that capitalism contained the seeds of its own destruction, that the exploitation of labor would ultimately cause the emerging, alienated working classes to rise up and crush bourgeois society, replacing capitalist systems with socialist âdictatorships of the proletariat.â Although many of Marx's criticisms of capitalism were alarmingly accurate, he was notoriously wrong in his prediction of its demise. Indeed, free market democracies have proven to be the most resilient of all forms of sociopolitical organization.
In terms of social peace and economic productivity, the determinative question turns out to be not so much whether labor is or is not âexploitedâ6 or how big the gap may be between rich and poor.7 Instead, what seems to matter is whether or not citizensâincluding the poor especiallyâhave a real opport...
