Paul Krugman in conversation with HCR raises an interesting question about Wealth inequality - How America survived the guilded age? Meaning, how did American democracy and constitutional system survived the era of Robber Barons in last decades of 19th century guilded age? The question is in context of present mayhem unleashed by American oligarchs & corporations (Musk, Bezos, Koches etc) who have destroyed American political system & democracy by extensively meddling with their wealth (and other means) in politics.
Although the present level of wealth inequality by far surpasses than that of guilded age of past, but plutocracy and monopolies (big business cartels) had already started to emerge in the economy during the guilded age and money was already influencing the politics of that time but there are a lot differences between past and present which I will explain in this article.
Early Stage of Capitalism - The Past
Capitalism of late 19th century (1870 to 1900) was very different from Capitalism of late 20th century (1980s onward) and Capitalism of early 21st century. There was certain harmony of interest between Capital and Labour during the guilded age - this is a critical point. And since there was a certain harmony of interest between Capitalists and workers, there was also a certain balance of power between Capitalists and Political democracy. Guilded age was a phase of Industrial Capitalism where Capitalists made enormous wealth as second industrial revolution began - technological innovation boomed, productivity rose, the markets & trade (exports) greatly expanded.
But most importantly, the Capitalism of this era was labour enabling. Meaning, the increasing avenues of production (mechanization) required labour which created tremendous opportunities for skilled (as well as lowly skilled) workers in industrial economy as well as tertiary sector. Now of course, there were still shortcomings in this period. Like workers (labour & tertiary jobs) didn’t have adequate workplace protection, insurance, pensions, safety nets etc (these will steadily come in next 50 years). But still an opening was created for upward social mobility. The Capitalists needed workers for production. For Capitalists to become rich, they needed labour to produce so that Capitalists can sell that produce and make profits.
No matter if Capitalists despise labour, they simply cannot make profits & wealth without them and no matter if labour only earned a small piece of profits as wages, they were still better off than not working in those industrial jobs. This was harmony of interests between Capitalists and labour. And some decades down the line, the labour prosperity will be at peak of its fortunes. The Blue Collar workers would enjoy handsome wages in industrial sector (like Ford auto plant) as well as decent protection (insurance, social security, workplace safety etc) - This was the gold age (which unfortunately won’t last long).
As long as there’s a certain harmony between social classes, there wasn’t an antagonistic political relationship between oligarchs and common people (proletariat & peasants). Of course, oligarchs of Guilded Age era may have been scoundrels but they did not have contempt for democracy like the oligarchs of today. The Capitalists were making high profits in certain harmony with workers, it didn’t make a lot of sense for Capitalists to unnecessarily rock the boat by excessive meddling in democracy.
Type of economy - The Past and Present
The Capitalism of guilded age and for several decades after that was vastly different in nature than that of today. This is not surprising because new goods & services arrive with technological progress. The second industrial revolution was about material production - engines, automobiles, electrification, construction, urbanization, machinery, mining, transport, railways, mass consumer goods, sewing machines, soaps, clothes (although refrigerators & washing machines only became common by 1940s) etc. All these things raised living standards of people. The labour worked in factories and produced things of which they also consumed a significant part of.
The industrial production (at least in America) during guilded age and second industrial revolution was also localized - the workers were Americans although there was major influx of migrants from Europe. And after first world war, the anti-immigrant sentiment suppressed immigration of workers into America. America also exercised protective tariffs to support its domestic industry which made it more competitive globally. But more than trade, what interests me is the type of economic production.
Expansion of Railway lines, electrification, new urban townships and industrial cities etc greatly benefited people in guilded age. The production was also tangible - new appliances, consumer goods, gadgets, machinery etc was life changing for people. This is a lot different from today’s American economy. In previous article, I emphasized how America no longer builds stuff. There’s very little expansion/upgradation of Infrastructure after golden age years. Even the infrastructure that was built decades ago is now dilapidated. There’s no comparison between infrastructure of cities of modern China and today’s America.
And what about production? A large part of American economy is now INTANGIBLE - type of goods & investments that doesn’t have conventional material basis. For example cloud computing, software, data & analytics, tech services, new AI trends etc. Even many types of material production of current times brings little improvement in people’s lives. How has latest model of iPhone really improved people’s lives compared to 10 years old model? How will Windows 12 markedly change people’s lives compared to Windows 7? Similarly, how has Facebook, X and Instagram made your life much better, if at all? Trying to measure material benefits of these intangible things is controversial & difficult. How have they really improved people’s lives?
But paradoxically while the new goods and services of intangible types do not bring significant changes in quality of life (I know I am exaggerating), the corporations that provide these goods & services, however, have made great wealth & achieved great power. There’s another way of looking at intangible economy - it’s more rent seeking. Intangible economy has the potential to be scaled enormously but it’s actual material benefits are much less visible. For example while Cloud & digital services, social media and computer/smartphone usage has exploded in last two decades, the stuff that qualifies as necessity of life has become out of reach. This manifests in affordability crisis - housing has become expensive especially in big cities. The education and healthcare has gotten expensive. This is reflected in high personal debts of people - Student loans strangulating people’s dreams and medical bankruptcies destroying savings of people are common.
The general trend of jobs in intangible economy is labour replacing rather than labour enabling. As I emphasized, there was a harmony of interests between labour and Capital during the guilded age. But now, with most of production either automatized or offshored, the Capitalists don’t need labour.
Note that I am skipping the negative outlook of Tech sector - the addiction & mental health crisis, hate mongering & disinformation on astronomical scale, malignant social engineering - which has created social discord across the world and undermined democracy in many nations. If we try to weigh these negatives, it’s difficult to confidently measure on how much society has really benefited from 21st century technology.
Capitalism of Present
The Capitalism of present is vastly different from past. There’s little or no harmony of interests between labour and Capital today. The production of corporations is now highly globalized and no longer corporation needs labour in America for its industrial production. The corporations are also not native to a particular country - they have become transnational - having no convergence of interests with national economy. The saying no longer holds - “what’s good for America is good for General motors”.
You may wonder how corporations make profit if they do not employ labour from local economy. After all, it’s the spending power of labour which dictates rate of profit for Capitalists. In an economy with stagnating wages, unemployment or underemployment the suppressed demand will also diminish Capitalists profits. This is true to some extent. The late stage Capitalism is actually about underutilized Capital, a significant output gap and various inefficiencies. But Capitalism has evolved to at least partially able to keep the consumption going despite underemployment, wage stagnation and output gap. How? Through debt of course.
If you don’t have sufficient disposable income, you can always pile on debt to afford your lifestyle (or basic necessities). Today, people are riddled with all kind of debt - student debt, housing debt & secondary mortgage, car loan, credit card debt, personal loan etc. The personal (household) debt keeps Capitalism going. Then there’s also vast government spending that supports Capitalism. Think of all the direct as well as secondary impact of $1 Trillion of defense spending. And government spending on social services (medicare, medicaid, unemployment benefits etc) and all kinds of expenditure also supports the economy to significant extent.
Age of Democracy - The Past and Present
Last decades of 19th century was age of democracy in western world. Although the concept of universal suffrage in guilded age was still far from modern standards (like lack of women’s suffrage, exclusivity of suffrage to propertied class in UK etc), the idea of democracy by then was deeply embedded in public opinion at least in the developed industrial world (most of West) and would eventually materialize fully in coming years. And mind you that America was a special nation which in terms of democratization was already ahead of Europe due to its 1776 revolution. In sum, Democracy was a popular concept in America as well as industrial western world by end of 19th century.
Surely, some plutocrats and big bourgeoisie may not have liked Democracy but they did not have contempt against Democracy either. Why? Because they were already making huge wealth and were in certain harmony of interests with labour. Democracy was seen as natural order of things and Capitalist class learned to live with it & continue making big wealth. Liberal democracy was an epoch of Capitalist society in old guilded age.
But today the political environment is different. Democracy has lost appeal in much of ruling class in America. Although politicians and oligarchs may publicly preach platitudes about democracy and so called American values, they genuine don’t believe in those things. Many oligarchs see Democracy as an idiotic concept. Also note that modern economy is now ruled by enormously large transnational corporations who’re as powerful as sovereign nations. These corporations decide investment, production, consumption, employment, technological advancement of the nation.
The politicians are cretins who participate in parliamentary circus (public hearings, empty speeches & other formalities) for spectacle of public consumption. The legislation, regulations and key policy decisions are drafted and dictated to politicians by lobbyists. Does it matter for Corporations if the President is 80 year old patient of dementia (who chants Build the wall) or an astute smart talking Black man (who chants Yes we can)? For oligarchy, it makes little difference. America has become a Dollarocracy, and for many oligarchs the personality & populist demagogy of politicians matter little as long as they control the strings of political system.
The oligarchs of today are also different from Robber Barons of guilded age in at least three aspects. First obviously is the fact that while Robber Barons had achieved monopolies in guilded age, their wealth and power was still no match compared to wealth & power of today’s oligarchs whose monopolies of corporations have become transnational and even global. Secondly, the Robber Barons of past did not have the instruments to manipulate public opinion and subvert democracy on a cosmic scale. Surely, Robber Barons owned newspapers and bribed politicians but that scope was limited. The extreme concentration of mass media (TV news, newspapers, magazines etc) & its vast outreach, and not to mention social media platforms in control of today’s Oligarchs, in total, has tremendous power to shape public opinion. Bribery in Politics is also pretty much legalized and more than that it’s now seen as acceptable norm in politics. The organized business of full time lobbyists, think tanks, PACs & Super PACs - all putting huge amount of money (& dark money) into politics and the revolving doors is not just tolerated but now well accepted norm. All this power of money as well instruments to shape public opinion has given tremendous leverage to today’s oligarchs over political system. Old Robber Barons never possessed such great leverage.
The oligarchs of today
Thirdly, the Oligarchs of today have contempt for democracy. Most of oligarchs hide this contempt but some don’t even try to hide it as they openly invade into political arena. People like Elon Musk (the first ever trillionaire) and Peter Thiel (who claims freedom & democracy are incompatible) are prime examples. Although I wouldn’t put too much weight into this but it’s also argued that old Robber Barons had certain aristocratic traits, a dignity of self restraint at least in public life. Such dignity was expressed in their symbolic philanthropy. But look at someone like Elon Musk for whom the cruelty & vulgarity are virtues. For example, women & children died because Musk (DOGE) cut American aid to poor nations. That doesn’t upset Musk, rather it makes him proud & happy. For an oligarch who plans to settle human colony on Mars - either he’s a great con artist to sell this idea to the markets or he’s simply delusional. It’s musingly said about today’s oligarchs that they are cranky and delusional. This differentiates them from old Robber Barons.
In Closing
The liberal Democracy survived the plutocracy and inequalities of guilded age because of several reasons. To begin with, in guilded age, Democracy was genuinely popular concept among public and Capitalists learned to live in that environment rather than trying to undo it. Capitalists and labour were also in certain harmony of interests as Capitalism of guilded age era was labour enabling although labour did not get adequate share of profits. The Capitalists did not have contempt for political democracy and so abided by its formalities.
The Capitalism and society of late 20th century and hitherto 21st century is vastly different from old guilded age. The corporations & oligarchs have become transnational & much more powerful to the level (or even greater) of sovereign nations. There’s no harmony of interest between labour & Capitalists as jobs are automatized or offshored. The production and investment of today is also intangible which although has created enormous wealth for Oligarchs but its actual material benefits are much less visible. The affordability crisis, the stagnating incomes of labour, the declining standards of living, the dilapidated infrastructure & crumbling cities of America reflects that intangible economy has great material shortcomings.
The oligarchs of today have contempt for democracy and are also cranky, delusional and sociopathic. The age of democracy has also waned as ‘markets’ have become guiding force in political and social life. With unprecedented influence of media & social media over public opinion, the democracy is reduced to a formality where people are manipulated to generate specific electoral outcomes. While Democracy thrived during the guilded age, Democracy withers in late stage Capitalism.