Financial professionals and the formation of proprietarian ideology

This review essay on economist Thomas Piketty's Capital and Ideology argues that the role of financial professionals as ideologues is a necessary yet missing component of Piketty's analysis. Using the history of capitalism in the United States as a connective thread, the essay synthesizes examples from a broad array of studies to trace the role of financial professionals from the counting houses of early republic New Orleans and New York through the professionalization of stockbrokers and investment bankers in the late-19th century Gilded Age to modern-day Wall Street white-collar workers. Throughout U.S. history financial professionals and their allied media institutions have been ubiquitous and essential advocates for a “proprietarian” ideology which prioritizes the sanctity of property rights over ameliorating inequality.

Thomas Piketty's Capital and Ideology offers a sprawling history of how conditions of economic inequality advance or constrain human progress. Casting aside arguments that economic growth lifts all boats, Piketty urges looking instead to political and ideological structures for a robust explanation of social development. The book's 17 chapters seek to establish a unified theory of social evolution at the nation-state level, developing a chronology and a terminology that proceeds from “ternary” systems of nobles, clerics, and peasants (a model Piketty fits to medieval and early modern societies from Western Europe to Japan) through the bourgeois capitalist regimes established in the eighteenth century and the social-democratic societies that arose in the wake of World War I, finally ending in a present-day surge in oligarchic populism that decries inequality while doing little, he argues, to reverse it. Particularly tragic, in Piketty's eyes, is that in recent history this shift has been accompanied by a “distinctive” meritocratic ideology which “blame[s] the poor for their poverty.” (Piketty, 2020, p. 710) Given Piketty's sociopolitical goals, Capital and Ideology's political vision suffers from often being free of ideologues. I argue that we might fill this gap by examining financial sector professionals as critical actors in establishing and defending “inequality regimes” (as Piketty terms them) throughout the past two centuries. Tracing the ideological work of financial professionals' in the United States from the early republic forward, I suggest we might discover fruitful continuities linking the development of new systems of capitalist knowledge in the Age of Revolutions with the social role of the present-day meritocracy.¹

While Piketty's earlier book Capital in the Twenty-First Century was built on the argument that unregulated capitalism “automatically generates arbitrary and unsustainable inequalities,” (Piketty, 2014, p. 1) the villain of the sequel is not capitalism per se but “proprietarian” ideology, a way of making sense of the world and shaping a given political regime to justify these inequalities whose first premise is “the sacralization of property rights,” as explained in the new book's brief glossary (1044). The first section of the book traces a long tradition of political arguments in many parts of the world devoted to refuting the idea that elites held unique responsibilities to the polity as a whole under the social contract. The third section of Capital and Ideology describes the “Great Transformation” which saw most of the North Atlantic democracies abandon the nineteenth-century liberal variation in the face of World War I and the Great Depression, followed by the steady return of inequality under neoliberal auspices from the 1970s onward. In the present day, Piketty is anxious about a possible move to a more malevolent “market nativism” which exploits xenophobia to dampen the appeal of redistributionist policy while entrenching tax systems which privilege existing wealth. In the final chapters, Piketty seeks to argue that only “exceptional taxes on private capital” can fund the reinvigoration of social democracy and ensure progress (886–891).

Piketty, in other words, is interested in capital—whether vested in control over economic outputs through ownership rights or represented in the (usually monetized) returns on those outputs, rather than capitalism—the systems of extraction, negotiation, coercion, and cooperation that produce those returns and ownership structures (Levy, 2017). Piketty devotes particular attention to French history to examine the intertwining of income inequality and the defense of property rights. In the fourth chapter, he offers a counterintuitive argument that the French Revolution, notwithstanding the toppling of the monarchy and the landowning nobility, entrenched property relationships more firmly than they had ever been before by severing ownership (particularly of land) from civil authority, enhancing the legitimacy of “modern property rights.” (105) The removal of “privileges and charges” and “establish[ing] equal access to different occupations and to property rights” were considered sufficient to ensure the desired goal of an egalitarian society (118). Changes in the sources of wealth of the country's largest fortunes, and the absence of political pressure to redistribute the country's prosperity through the tax code, however, meant that by the late nineteenth century income inequality had already risen to levels like those of the pre-revolutionary era. Nonetheless it was important for Third Republic politicians to insist that France was “a country of ‘smallholders’” (139) yet Piketty's detailed quantitative studies of income and property show the distribution of wealth barely budged for the poorest 90% of the country from 1780 until 1910, and that their cumulative total rarely reached above 50% of income or 20% of property (130–131).

In shifting focus from capitalism to property, Piketty seeks to trace the longer history of the ideological argument that the social conditions capitalism creates can be justified by the resulting distribution of property. Piketty describes ideology as “attempts… to impose meaning” from above. To study ideology, he focuses on formal political speech, found in party platforms and governmental debates; he also turns to “theorists and political actors to see how inequalities were justified.” (14) His attention is drawn most, as in the 11th chapter (the book's longest), to those political parties which were in the vanguard of creating the “incomplete equality” regimes that triumphed in Western democracies in the mid-twentieth century, from the German Social Democratic Party to the Democratic Party in the United States to the workers' parties of Scandinavia (486–508). Piketty is clearly more sympathetic to these political groups, and seems fascinated, for example, by the transformations that have taken the Democrats from a party dominated by southern slaveholders to the vehicle for supplanting the inequality regime of industrial ownership societies through the New Deal to, eventually, a party of the “brahmin left” identified with “serving the interests of the highly educated rather than the disadvantaged.” (834).

This choice of focus, however, means that attentiveness to the conditions of inequality proprietarian ideology creates in everyday life, and how these conditions hold together a broad coalition of supporters, is largely missing. The lack of this analysis seems to be an important gap in Piketty's mission to overturn inequality in mass-suffrage societies. At the end of the book, he offers an outline of a new “participatory socialism” (1016–1022) operating through government action alongside transformations in workforce relationships, judicial systems, and global institutions to overturn the prevailing inequality regime. An analysis of how what might be called “proprietarian” coalitions” are assembled would seem to be an important task to determine what set of political conditions might overturn proprietarian ideology. Without understanding how political movements which prioritize the preservation of the wealth and privilege of a tiny elite organize larger followings, it seems likely Piketty's political mission will fail.

Building political power and momentum for proprietarian coalitions depends, in other words, on ideologues. I would argue that we can find these ideologues who are so important for Piketty's argument if we focus on the financial professionals and clerks who mediated global and local exchange. By “financial professionals” I mean actors as varied as the attorneys of the bankruptcy bar, the stockbrokers who developed new genres of literature to reach potential investors, the real estate agents who facilitated international property development schemes and pioneered local housing markets, and the mortgage bankers who created new forms of securitized finance (Coffee, 2006; Glotzer, 2020; Hornstein, 2005; Hyman, 2011; Knight, 2016; Ott, 2011; Skeel, 2001). Financial professionals' livelihood depended on innovation with respect to property: they were ever developing new instruments to represent claims on property and new ways of negotiating, verifying, and asserting these claims. Self-interest led them to be the vanguard of the proprietarian coalition. Financial professionals' reliance on income from intangible services and fees for dealing in abstract negotiable instruments paradoxically reinforced their devotion to proprietarian ideology.

The appeal of proprietarian ideology to financial professionals can be traced back to the information problems of bourgeois capitalism in the Atlantic world. Absentee ownership of slave plantations, long-distance trade relationships, and interregional land development schemes all required investors to place significant trust in their partners and subordinates. Under these conditions, information asymmetries acted as a form of property; the ability to sell or trade “secrets” was an important element of building trust relationships that might lead to future profitable cooperation. The expertise necessary to keep accurate, reliable accounts, and the use of account books as a form of oversight, created a precarious dependence between business collaborators who might be separated by thousands of miles and communicated only over the course of weeks or months (Ditz, 2000; Rosenthal, 2018). Global reputation networks built on hierarchies of place knit together global ports and backwater outposts, ranging in scale from multi-branch banking houses to solitary speculators. From the circulation of information hierarchies of merit in turn emerged, adhering to individuals and eventually quantified in the records of credit agencies (Baskin, 1988; Beckert, 2014; Olegario, 2006).

An account of proprietarian meritocracy in the United States might begin with considering how the early American republic, like the post-French revolution political settlement, sought to preserve property rights while removing “privileges and charges” and equalizing occupational opportunities. In practice, this depended on protecting investors who financed capitalist projects while encouraging a new cadre of risk-bearing entrepreneurs. Investors benefited from what Woody Holton has described as the “procreditor” Constitution, which ensured they would be able to recoup their loans by emboldening federal courts to strike down debtors' relief legislation (Holton, 2018). The launching of the new political system crystallized meritocracy along racial lines; in other words, rather than Piketty's argument that meritocracy arose in the industrial era “to justify social differences on the basis of individual abilities,” (710) the intertwining of ideas about racial capacity and economic capacity shaped a hierarchical vision of society which could encompass a wide range of prejudices from the individual merchant to the debt practices of foreign nations (Flandreau, 2016; Garrett-Scott, 2019; O’Malley, 2012; White, 2015).

In the borderlands of bourgeois capitalism, ideologies of personal and financial risk were intertwined with the implantation of an economic culture arranged around finance. Opportunistic speculators in the Deep South benefited from the willingness of investors from Boston to Britain to fund land speculation and benefited from social hierarchies in the early republic that eased their infiltration as economic actors, enabling them to swindle native Creek families and other Indians who obtained little redress from the federal government (Saunt, 2019). The availability of credit and access to social networks to negotiate problems and overcome business stumbles were deeply rooted in ideologies which favored white, Protestant men, yet even among white men merit could be framed in embodied terms: as Kathryn Olivarius explains, “immunocapital” accrued to New Orleans businessmen who had survived yellow fever and served as “an explanatory tool for success or failure in commodity capitalism.” Northern clerks similarly measured their physical and digestive health against their peers to index their chances for success, with institutions like the Young Men's Christian Association providing opportunities for physical self-improvement alongside moral improvement (Lupkin, 2010; Olegario, 2006; Olivarius, 2019, quote p. 442; Zakim, 2018). The racially embodied meritocracy would continue to be an important component of career success even as new technologies like the telegram and the stock ticker modified the geographic scope of capitalism, and the scale of the potential profits, while the types of expertise men were expected to deploy in pursuit of such opportunities became more and more specialized. Eventually, embodied meritocracy would be transformed into educational meritocracy through the propagation of the undergraduate “college man,” preferably an athlete, as the ideal “corporate professional” (Bjelopera, 2005; Clark, 2010; Davis, 2000).

An increasing number and variety of experts held themselves out as agents who could help resolve principals' monitoring problems. Professional associations provided one way of overcoming the problem of a proliferating number of experts while simultaneously serving as a launchpad for proprietarian coalitions. Members of these associations sought to establish their credibility through the production of broadly-circulating representations, or “technologies of trust” as Marc Flandreau has phrased it, creating forums for demonstrating and recognizing each other as honorable, reliable men. Because questions of how knowledge would be divided amongst different experts were still up for grabs, these associations were often marked by conjunctions of expertise which seem incongruous from present-day perspective: the Anthropological Society of London, for example, also served as a nexus point for the creation of the Corporation of Foreign Bondholders, an organization established by “debt vultures” to win British government backing for their campaigns to restructure payments on distressed foreign debt on profitable terms. The affinity between the two associations was derived from the idea that the kind of knowledge necessary for understanding foreign cultures was congruent with the kind of knowledge necessary for understanding foreign finance (Flandreau, 2016).

Placing the financial sector at the center of the analysis of Capital and Ideology would make clearer the emergence of global hierarchies of merit. The expansion of capitalism depended on agents who commanded increasingly specialized bodies of knowledge, such as geologists advising on the location of lucrative coal and oil deposits (Lucier, 2008). The telegraph and the creation of a global communication infrastructure transformed capitalism by enabling an exponential shift in the projection of information across long distances and the scale of financial markets. It enabled communities of investors to congregate in newly imagined spaces and facilitated oversight across oceans and continents, whether British families invested in Baltimore real estate or American bankers who reshaped the Caribbean sugar industry (Glotzer, 2020; Hudson, 2017). New professions such as accountancy developed and the status hierarchy within existing professions, such as law, reshuffled as the most lucrative incomes were gathered by law firms whose senior partners specialized in putting together complex merger agreements and banking syndicate contracts while their entry-level associates fought to quash cases involving minimum wages, injury compensation, and social welfare more broadly in the name of protecting property rights (Auerbach, 1976; Preda, 2009; Wilkins, 1989).

Economic growth within the United States also changed the hierarchy of relationships between different parts of the country. A larger number of financial centers developed but their orientation toward New York City grew over time. Increasing industrial prosperity threw off larger and larger profits, enabling the wealthiest investors and entrepreneurs to step aside from active management while generating salaries for an ever-wider range of professionals who asserted and protected claims on property. Bank directors in large cities no longer evaluated borrowers themselves but turned to credit experts; bank officials also made common cause with small-town commercial associations to win stronger creditor protections in the 1898 federal bankruptcy act. After the law's passage, credit professionals shared techniques to ensure debts were collected and that those who had not respected property rights were punished for failing “to protect the sanctity of the credit relation” (Hansen, 1998; Lamoreaux, 1994; Skeel, 2001; Smith, 2010, quotation p. 218).

The widening and deepening of financial professional communities was matched in other professional sectors, such as medicine, creating opportunities for financial professionals to make alliances and expand the proprietarian coalition. All professionals faced the fact that much or all of their “capital” was their intangible intellect. The proliferation of professional associations made it possible to convert this intellectual property (so to speak) into state-sanctioned credentialing systems (licensing authorities, medical boards, etc.) with barriers to entry that preserved their advantages. In medicine and other fields these practices typically replicated existing hierarchies of gender and race (Schafer, 2014; Wiebe, 1962). Many elite financiers used philanthropy to preserve white, Protestant men's places in the colleges producing the new professional meritocracy, as Susie Pak has shown using the example of Thomas Lamont of J.P. Morgan & Co.; indeed, young college men could be found intervening as strikebreakers to uphold proprietarian ideology (Norwood, 2002; Pak, 2013). Professionals increasingly saw themselves as part of a worldwide meritocracy and used international expositions and literature exchanges as opportunities to circulate ideas for both reform and self-protection (Rosenberg, 2012). Financial professionals were key advocates for proprietarian ideology because its abstract premises dovetailed with their pragmatic priorities of protecting assets from taxation and promoting government policies to ensure asset liquidity—and thus transaction fees (Allen, 2015; Hansen, 2009).

From time to time Piketty catches sight of the importance of systems of professional knowledge for creating and justifying global systems of inequality. Examining the portfolio composition of the top 1% of French estates during the belle époque, for example, Piketty notes the preponderance of foreign investment, including in French colonies, and alludes to the use of the mission civilisatrice trope to justify the economic order undergirding these profitable extractive relationships. A discussion of the information infrastructure used to defend these arrangements, however, is largely absent. (270–287) Russia and other nations, for example, secretly subsidized Paris newspapers to pontificate on their internal stability and cheer on a friendly foreign policy to ensure a robust market for their bonds (Berenson, 1992, p. 235). In the United States, meanwhile, alongside national publications like the Commercial and Financial Chronicle which celebrated proprietary ideology, newspaper publishers not only boosted local “growth machines” but also used their publications to explain and defend proprietarian ideology in their community's hinterlands, as when William Randolph Hearst in San Francisco and Harrison Otis in Los Angeles made the case for military intervention to protect their Peruvian and Mexican investments (Brechin, 1999; Kim, 2019).

Business journalists and publicists were an important faction of financial ideologues, generally avoiding other reporters' embrace of methodological objectivity and slipping back and forth between publishing statistics, editing financial magazines, writing advice columns, and lecturing. The weekly Commercial and Financial Chronicle, launched in 1865, was both the statistical supplier of choice and a steadfast advocate for “security of property.” Journalists transformed the internal rationales and assumptions of professional communities into arguments that could be explained and justified as normative in the broader culture (Ryant, 1989; Steeples, 2002). This ideological work became particularly important in the face of growing skepticism about proprietarian ideology's promises given the high inequality of the interwar years (Knight, 2016; O’Sullivan, 2016; Piketty, 2020, esp. 291–294). Julia Ott shows, for example, how New York Stock Exchange (NYSE) leaders sought after World War I to establish the idea that widespread securities ownership was within reach and would create a “investors' democracy” whose virtues superseded and could displace government regulation of business and corporate finance (Ott, 2011, pp. 130–136). In a more direct example, Isaac Martin's account of the 1924–1925 “tax clubs” movement describes the paid activist J. A. Arnold's creation of a coalition of small-town elites in Texas to support a significant federal tax cut whose greatest beneficiaries were wealthy Easterners. Combining “populist tactics and militant anti-egalitarian demands,” movement activists, often local bank officials, anticipated the tax cut would make their own securities more attractive than government-subsidized bonds but made their arguments on proprietarian grounds, insisting the tax cut would ensure money was “released for investment in productive enterprises.” The campaign successfully pressured Congress and rates were slashed in 1926, representing a triumph for the richest Americans (Martin, 2013, 44–67, quote p. 58).

Despite this victory, barely a decade later the Great Depression and the rapid implementation of the New Deal created a profound shock for proprietarian ideologues, shaking them from their belief in the inevitable triumph of their goals. As Ott explains, NYSE leaders assembled a new Senate alliance between their traditional Republican backers and segregationist Southern Democrats to protect the preferential tax treatment of capital gains in the name of “a vision of freedom that centered… [on] the liquidity” of financial assets, deploying their argument widely through both print pamphlets and the new medium of radio (Ott, 2019, p. 105). Piketty's emphasis on the New Deal rather than the proprietarian ideologues means he misses an opportunity to explain how this alliance became the launchpad for neo-proprietarian ideology. Organizers like William F. Buckley and Leonard Read built conservative media and explicitly political professional organizations that took up the cause of rolling back taxation and rescinding regulations that might inhibit profit maximization. The proprietarian coalition was able to reinvigorate and expand by making a meritocratic appeal to new professions established to meet the demands of the burgeoning government and the postwar consumer society, from management consultants and government contractors to “entrepreneurs” drawn to companies like Amway and service-industry workers at Wal-Mart who melded evangelical and “promarket” values. The invention and valorization of an American tradition of “free enterprise” was critical to this project, arguably culminating in the success of the former business spokesmen Ronald Reagan and Donald Trump in their respective presidential runs and their aggressive rollbacks of taxes on the wealthy (888–889) (Glickman, 2019; McKenna, 2006; Mondom, 2018; Moreton, 2009; Phillips-Fein, 2009). Nonetheless financial professionals remain central to this project; indeed the Wall Street Journal's editorial section today arguably fills the same role as the Commercial and Financial Chronicle in the past as the most prominent media advocate for proprietarian ideology.

“There is never anything ‘natural’ about social inequality,” Piketty declares after summarizing elite-dominated regimes from Japan to Iran to China. “It is always profoundly ideological and political.” (411) Just because the fall and now rise again of inequality is not a “natural” process, however, does not exclude the possibility that the professionals whose labor is at the heart of its perpetuation do not see their participation as natural. Karen Ho's ethnography of present-day financial workers, Liquidated, examines the worldviews of young professionals who have transitioned from elite universities into entry-level jobs on Wall Street. Poised on the lower rungs of the meritocracy, Ho notes that young workers quickly internalize the logic of “downsizing” and “rightsizing” workers laboring in retail and manufacturing in part because of their own experience of a rapidly churning job market (though with a much more comfortable safety net) (Ho, 2009). Bringing a historically-minded approach to how such values permeate through professional cultures not as false consciousness but as a sincere response to precarious conditions may be an important step for those seeking to organize against and overturn the prevailing crisis of wealth inequality.