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Washington
think tank informs us that the average annual compensation of the top 100
chief executives amounts to an astonishing $37.5 million, which is 1000 times
the pay of an average worker. The top one percent of households reportedly
earns 20 percent of all incomes and owns 33.4 percent of all net worth. The
most astonishing feature of such concentration of wealth in the hands of a tiny elite is the utter lack of concern and comment
by the American media. They apparently find nothing wrong with such glaring
inequality.
We may readily agree with the media as long as the
great chasm of income and wealth stems from great differences in economic
productivity. Surely, we cannot fault the great American entrepreneurs who in
ages past built famous enterprises employing thousands of workers and serving
millions of consumers. They discovered new methods of production, opened new
markets, and developed new sources of raw materials throughout the world. They
succeeded by serving and pleasing consumers. Their talents of enterprise
actually raised American standards of living to one of the highest in the
world. And their labors bridged the wide legal,
social, and economic gulf that separated the social classes throughout the
ages.
The economic order that developed gradually during
the 20th century gave life to yet another economic and social elite which
does not seek new methods of production and does not give employment to
thousands of workers; it shrewdly speculates on the effects of various
government policies, such as inflation, credit expansion, and new regulations
and controls. An economist who visits the new elite may actually discern
three distinct branches that cooperate as readily as they feud with each
other.
A large branch does not create new enterprises nor
give employment to a single worker. It opens no markets nor develops new
products. Its members thrive on boom-and-bust cycles which afford great
opportunities to traders who observe and understand the portentous policies
of the Federal Reserve and the U.S. Treasury. They may manage investment
trusts holding corporate stock worth billions of dollars or merely look after
their own accounts. They weigh and appraise political intention and
government intervention, always gauging the consequences, acting in
anticipation, and profiting immensely from political moves. While many
businessmen suffer painful losses during a business cycle, they succeed in
increasing their funds throughout it all.
These speculators actually render an important
service. The Federal Reserve and the U.S. Treasury frequently intrude on and
disrupt the smooth performance of markets, which then must readjust; they
actually facilitate the adjustment. They anticipate future price movements,
assume market price rick, and add liquidity and
capital to the markets. Theirs is a necessary and productive activity.
A remarkable feature of this
new elite is its frequent disagreements and altercations with the other
branches of the business elite. Its members may find frequent fault with and
cast aspersions on the elite that actually manages the production. They
prefer to support and consort with the political powers that shape the
economic policies, seeking the company of well-known politicians who in turn
feel at ease with generous nouveaux riches.
Another branch of the new elite consists of chief
executives whose compensation usually comprises a base salary and incentive
options. They earn million-dollar lucre whenever the Federal Reserve blows
stock market bubbles and corporate share prices soar to lofty price-earnings
ratios. During the 1990s-bubble they pocketed hundred-million-dollar profits
without any particular efforts of their own. They created no new industries
and opened no new markets. The corporations they managed did not grow and
corporate profits stagnated or even declined. But stock prices soared and CEOs reaped much lucre at the expense of their own stock
holders. For every bubble profit taken is total worth consumed. It waters the
stock and diminishes the property of all other stockholders. To remedy the
situation, the corporation must henceforth increase its assets without
increasing its outstanding shares or reduce outstanding shares without
reducing assets. CEOs probably are aware of these
implications, but few, if any, have ever returned their bubble lucre to
losing stockholders.
The most powerful elite is yet another; it springs
from political power that holds authority over the body politic. It is the
natural extension of the new economic order known by various labels such as
the New Deal, the Great Society, and other Democratic and Republican Deals. They
made politics an important vocation and elevated politicians to positions of
importance and eminence. Surely, politicians have to be ever mindful of
public opinion which is shaped by the elite of education and communication. Many
master the art of political communication and thus manage to perpetuate
themselves in office. In their footsteps their children are laboring to forge a self-perpetuating
political elite.
This country is not about to degenerate into a
class-based society led by a ruling elite. Competition is a time-honored practice, a cultural custom followed from
generation to generation. But, under the influence of collectivist
ideologies, many politicians and journalists are ever eager to strike at
successful entrepreneurs who earn much more than they do. It is difficult to
ascertain their motives; it can be simple envy which consumes many men, or it
can be economic ignorance. After all, market economics is barred from most
universities and is unknown to leading politicians and journalists. It may
explain why most politicians are ever eager to regulate industrial and
commercial activity and strike at the economic elite with confiscatory
taxation. Unfortunately, regulation and taxation tend to hamper economic
activity, inhibit productivity, and depress levels of living. But they create
ever new profit opportunities for the new economic elite.
Dr Hans F. Sennholz
www.sennholz.com
Dr. Sennholz is President
of The Foundation for Economic Education, Irvington-on-Hudson, New York and a
consultant, author and lecturer of Austrian Economics.
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