Income Inequality in the New Gilded Age

Everyone believes, quite reasonably, that America is suffering from an advanced case of income inequality. It remains to be seen whether it is acute or chronic. In our new gilded age a few people control massive amounts of wealth while the many are barely subsisting.

Moreover, many of those who have vast fortunes are prone to flaunt it. They fly around in private jets, vacation in the most expensive locales and buy whatever they want, regardless of price.

Of course, they self-segregate. It goes beyond the gated communities. When a student of modest means encounters the children of the superrich in college, he will know that he can never really hang out with them, because he cannot spend with them. It feels strange, even immoral for college students, the children of the superrich, to spend massive amounts of money that they did not earn, but such is life.

The superrich buy massive homes in San Francisco and New York, eschewing the modesty of a Warren Buffett who still lives in a modest abode in Omaha, NE.

Naturally, there has been something of a political uproar about the problem. But, even the superrich are trying to solve the problem, by the way that makes the most sense to them: income and wealth redistribution. It seems strange to many, but the tech titans of Silicon Valley and many hedge fund billionaires often support Democratic, socialist redistribution schemes.

In truth, when you are that rich, a few hundred million here or there is not real money. Besides, by buying Democratic politicians they are buying protection, as it used to be called. They are ensuring that it will not all be confiscated by the government.

Back in the day, when the Republic was founded by great moral teachers like Benjamin Franklin, conspicuous consumption was considered to be vulgar. One did not flaunt one’s wealth. It was poor form.

But, why did this central tenet of the Protestant work ethic take root? And what did it mean?

In the first place, Franklin believed in investment, not in spending. He believed that the rich had a duty to invest in new businesses, the better to give others the chance to work their way up. His was not an ethic of redistribution or handouts.

Second, if the superrich flaunt their success through profligate spending, then other members of society, prone by human nature to emulate their betters, will try to spend money in order to have a lifestyle that resembles that of the superrich. Since they, as opposed to the billionaires, do not have the means to support their spending habit, they are more likely to go broke. Thus, the wealthy man who is modest in his expenditures and who invests and saves his money will be setting a good example.

In addition, flaunting your wealth is vulgar and shameless. It is also decadent and wasteful. Not everyone has the capacity to be immodest about their wealth. Shamelessness sets a bad example.

Finally,  gross income inequality, especially the kind that flaunts success as a way to make everyone else feel like losers, will make people become demoralized or angry. If the gap is too great people will become demoralized; they will know that there is no way for them to attain what the superrich have attained. If that is the case, why work at all.

This to introduce a short essay by John Paul Rollert, an adjunct associate professor in the University of Chicago business school. Rollert sometimes regales his students with the thought of Benjamin Franklin, a set of ethical principles set out in his Autobiography. The book was wildly popular in colonial America and still contains enough wit and wisdom to make it required reading.

For today’s business school students, Franklin’s precepts appear to set down the road to middle management. And they, of course, are far more ambitious than that.

In a world where all MBA students want to become billionaires, quite a few of them are going to be disappointed.

Rollert explains that Franklin retired from his printing business at 42, thereupon to become “a man of leisure.” Many people today think that leisure is the best that life can offer. Yet, what Franklin meant by leisure was not at all the same as what we call it:

When he retired from the printing business at the age of 42, Benjamin Franklin set his sights on becoming what he called a “Man of Leisure.” To modern ears, that title might suggest Franklin aimed to spend his autumn years sleeping in or stopping by the tavern, but to colonial contemporaries, it would have intimated aristocratic pretension. A “Man of Leisure” was typically a member of the landed elite, someone who spent his days fox hunting and affecting boredom. He didn’t have to work for a living, and, frankly, he wouldn’t dream of doing so.

Having worked as a successful shopkeeper with a keen eye for investments, Franklin had earned his leisure, but rather than cultivate the fine arts of indolence, retirement, he said, was “time for doing something useful.” Hence, the many activities of Franklin’s retirement: scientist, statesman, and sage, as well as one-man civic society for the city of Philadelphia. His post-employment accomplishments earned him the sobriquet of “The First American” in his own lifetime, and yet, for succeeding generations, the endeavor that was considered his most “useful” was the working life he left behind when he embarked on a life of leisure.

For Franklin, leisure meant having the time to become a scientist, a statesman, a political leader and a wise man. He set out to contribute the nascent American Republic, using his wit and wisdom and industry. He did not try to assuage his guilt by setting up philanthropies that would give away his money.

And naturally, he dressed modestly and did not indulge in profligate spending.

Franklin wrote his Autobiography because he wanted to improve:

… the features of private character, and consequently of aiding all happiness both public and domestic

Good character was civic virtue.  Franklin was not aiming at moral transcendence or the form of spiritual fulfillment that would have raised him above the mass of humanity. He wanted to get along with others, to be able to look them in the eye, to show them respect, not to cause them to lose face.

In Franklin’s words:

I took care not only to be in Reality Industrious & frugal, but to avoid all Appearances to the Contrary. I drest plainly; I was seen at no Places of idle Diversion; I never went out a-fishing or shooting; a Book, indeed, sometimes debauch’d me from my Work; but that was seldom, snug, & gave no Scandal: and to show that I was not above my Business, I sometimes brought home the Paper I purchas’d at the Stores, thro’ the Streets on a Wheelbarrow. Thus being esteem’d an industrious thriving young Man, and paying duly for what I bought, the Merchants who imported Stationary solicited my Custom, others propos’d supplying me with Books, & I went on swimmingly.

Franklin composed a set of ethical principles. Among them were frugality, industriousness, order, sincerity, justice, moderation and humility.

Rollert concludes with a prophetic remark made by America’s Secretary of the Treasury, regarding the decadence and profligate spending of the twenties:

In 1929, Treasury Secretary Andrew Mellon wrote that, thanks to Franklin, “America early learned to spend her surplus earnings on further production rather than selfish enjoyment.” The decade when this tribute was issued doesn’t seem coincidental. The behavior that made Franklin, in Mellon’s words, the “Father of Thrift” must have seemed quaint to so many Jazz Age arrivistes who regarded conspicuous consumption as not simply the evidence of commercial success but, when it came to looking the part, the very catalyst for that condition.