out for his guests’ comfort.”3
This charisma extended to the realm of ideas and gained him a following that has endured more than a century after his death. He vivisected capitalism, impaling Victorian and neoclassical economists, who regarded humanity as a set of identical, perfectly informed, “utility-maximizing” individuals and firms pursuing their own self-interest, to be treated as data inputs for their mathematical sausage-making machines. In these economists’ hands, he acidly observed, a human became “a lightning calculator of pleasures and pains, who oscillates like a homogenous globule of desire of happiness under the impulse of stimuli.” Such economists, he jeered, would take “a gang of Aleutian Islanders, slashing about in the wrack and surf with rakes and magical incantations for the capture of shellfish,” and shovel them all into equations about rent, wages, and interest. Bring back history, he lamented. Bring back politics. Bring back real life. He had a point then, and he would still have a point today.4
Veblen’s best-known book, The Theory of the Leisure Class, published in 1899, is a vicious exposé of a world where productive workers toiled long hours and parasitic elites fed off the fruits of their labors. The wealthy also engaged in “conspicuous consumption” and “conspicuous leisure”—wasteful activities to show others they were so rich they didn’t need to work. Plutocrats always wanted more wealth and power, he noted, and, worse, their petulance and excesses generally provoked not anger but reverence! The oppressed masses didn’t try to overthrow their social betters; they wanted to copy them. (The popularity of shows like Keeping Up with the Kardashians might be the modern equivalent.) Twentieth-century man, he concluded, wasn’t that far removed from his barbarian ancestors.
Veblen’s next big book, The Theory of Business Enterprise, published in 1904, got less attention but was more radical and more important.5 In it, he contrasted industry and the “machine process”—the productive engineers and entrepreneurs who rolled their sleeves up and made useful stuff—with what he called the “business” of making profits. Above the foundation of production rose a financial superstructure of credit, loans, ownership, bets, and markets to be controlled and milked. While Marx had focused on tensions between workers and factory owners, Veblen concentrated on a different but related struggle: between wealth creators and wealth extractors. Makers versus takers; producers versus predators. If it helps, picture a group of old men in top hats, manipulating a Rube Goldberg–like contraption of spindly pipework perched on top of the economy, hoovering up coins and notes and IOUs from the pockets of the workers and consumers toiling away underneath.6
Generations of economic thinkers had known about this distinction at least as far back as the publication of Adam Smith’s The Wealth of Nations in 1776.7 The main problem, though, was that people disagreed about who the wealth creators were. A conservative tradition holds that they are the rich, the owners of money and capital, who build the factories, then get taxed by government, which redistributes their wealth to the poor and to the recipients of handouts. It’s a view that had long been promoted by the likes of John C. Calhoun, a former US vice president and secretary of war who had been a leading defender of slavers and plantation owners. Calhoun, the “Marx of the Master Class,” did everything he could to try to safeguard “the rights of the radical rich,” as the historian Nancy MacLean puts it: the rights of wealthy elites against “oppression” by democracy and by the “tyranny” of majority voting.8 Calhoun’s modern equivalent would be today’s billionaire classes, who lobby, finance think tanks and political candidates, and even create media empires so as to skew and rig the laws of the land in their favor. In their view of history, it’s the poor and disadvantaged who are the leeches, preying on the capitalists.
But Veblen was having none of it. He compared the rich wealth extractor to a self-satisfied toad who “has found his appointed place along some frequented run where many flies and spiders pass and repass,” and he then went a whole step further, into more controversial terrain. Many businessmen get rich, Veblen went on, not just through extraction, like the lazy toad catching passing flies, but through active sabotage—or, as he put it in his spiky language, “the conscientious withdrawing of efficiency.” These players, he said, interrupt the regular flow of outputs, shaking the tree so they can more easily make off with the fruit.9
Nonsense, the critics sneered. Who’d do such a rotten, foolish thing?
Lots of people, it turns out. Veblen had brutally exposed one of capitalism’s great open secrets. Here it is: big capitalists don’t like efficient competition, and they don’t like free markets. They say they do, but genuine competition drives down prices and drives up wages—and so reduces profits. What they really like are markets rigged in their favor and against workers, consumers, and taxpayers. That’s where the big money is. Instead of competing against each other they conspire against consumers: “It became a competition not within the business but between the business as a whole and the rest of the community.” This conflict is at the heart of the finance curse.
The Theory of Business Enterprise came out in the wake of what was then, and may still be, the most impressive feat of investigative journalism in world history. This was an exposé of John D. Rockefeller’s Standard Oil monopoly by the journalist Ida Tarbell, who uncovered a conspiracy and cartel the likes of which the world had never seen. Rockefeller, she revealed, was a master of Veblenite sabotage, rigging markets in the production and distribution of oil and its refined products, buying or elbowing out rivals in a ruthless and sometimes violent quest to build an America-wide monopoly. Her articles, serialized in McClure’s magazine from 1902 to 1904, opened with a picture of rugged young men carving out new frontier towns in the Pennsylvania oil fields.
Life ran swift and ruddy and joyous in these men. They were still young, most of them under forty, and they looked forward with all the eagerness of the young who have just learned their powers, to years of struggle and development. They would make their towns the most beautiful in the world. But suddenly, at the very heyday of this confidence, a big hand reached out from nobody knew where, to steal their conquest and throttle their future. The suddenness and the blackness of the assault on their business stirred to the bottom their manhood and their sense of fair play.10
In one Rockefeller operation a hundred ruffians descended on Hancock, a town in Delaware County, New York, in 1892 to prevent a competing pipe from being laid. As another account put it,
Dynamite was part of their armament, and they were equipped with grappling irons, cant-hooks, and other tools to pull the pipe up if laid. Cannon … are used to perforate tanks in which the oil takes fire. To let the “independents” know what they were to expect the cannon was fired at ten o’clock at night with a report that shook the people and the windows for miles about.11
The independents abandoned Hancock. A more overt act of business sabotage is hard to imagine.
Tarbell’s explosive articles were an obsessive labor of love and loathing. She had watched her own father, a small-time oilman named Franklin Tarbell, transmogrified by Rockefeller’s ruthless tactics from genial, loving father into a grim-faced, humorless shell. “Take Standard Oil stock, and your family will never know want,” Rockefeller crooned to the victims of his semilegal practices. He would offer to swap their degraded business interests for Standard Oil stock, offering the equivalent of pennies on the dollar, while assuring them that they would be much better off with him because, he admitted, “I have ways of making money you know nothing of.” Franklin Tarbell held out and paid a heavy price, so much so that his business partner killed himself. Ida’s father “no longer told of the funny things he had seen and heard during the day,” she remembered. “He no longer played his Jew’s harp, nor sang to my little sister on the arm of his chair.”
Rockefeller paid bribes and kickbacks. He eliminated rivals through spying, smear tactics, thuggery, and buyouts with menaces. He sabotaged producers of oil barrels, hoarded oil, and squashed middlemen. He secretly financed politicians and haughtily dismissed requests to appear at official inquiries. He covered his tracks, delegating questionable tasks to juniors and avoiding compromising language on internal documents. He expanded overseas, dodging regulations and gaming gaps in the global tax system to become,