Читать книгу The Finance Curse - Nicholas Shaxson - Страница 8

Some economists behave like aliens who sit in spaceships high above Earth, watching us through powerful telescopes. They record all the scurrying back and forth, then build theories and mathematical models about what we’re up to, without properly accounting for folly, cruelty, sex, friendship, patriotism, credulity, and the general rough-and-tumble of our crazy, emotional lives.

One economist who perceived both the economic behavior and the emotional complexity, and can consequently help us understand the finance curse, was an early-twentieth-century Norwegian American called Thorstein Veblen, an extraterrestrial of a different kind. An unlikely figure, he perched himself outside the normal range of human experience, and this enabled him to sit far enough back from humanity to observe our foibles clearly, so he could use them as a starting point for properly understanding the world of money and business. Veblen rebelled against the conventional wisdom. He has been called an American Karl Marx and the Charles Darwin of economics, but in truth his varied output is too diverse and weird to categorize. Yet his nuanced understanding of messy human behavior is exactly what makes his ideas so remarkable—and useful. By linking economics with uglier truths about how we as humans really behave and think, he discerned many of the deepest principles that underpin the finance curse.

Veblen was an economist, sociologist, womanizer, and misfit. He made his own furniture but didn’t make his bed in the morning, and he would let his dishes pile up in tottering heaps before washing them all in a barrel with a hose. It is said he once borrowed a sack from a neighbor just so that he could return it with a hornet’s nest inside. In his florid, peculiar writing style he described religion as “the fabrication of vendible imponderables in the nth dimension,” the main religious denominations as “chain stores,” and their individual churches as “retail outlets.” At the fiercely religious Carleton College in Minnesota he poked fun at mathematical economics by asking a student to calculate the value of her church to her in kegs of beer, and he provoked uproar with a speech entitled “A Plea for Cannibalism.” A lank-haired weirdo genius, he observed society unencumbered by strictures of religion, economic conventions, or the petty airs and graces of the early twentieth century that kept the grubby workers down and the landed gentry in their rightful place. His apartness let him see things others couldn’t and helped him say the unsayable.

Born to Norwegian immigrant parents in rural Wisconsin in 1857, Veblen was the sixth and the smartest of twelve children. The farmstead where he grew up was so isolated that when he left he was, as one historian put it, “emigrating to America.” His brilliance took him from these humble beginnings to Yale, where he got a PhD in 1884, before going to ground and mooching around listlessly for several years. “He read and loafed,” his brother remembered, “and the next day he loafed and read.” Some said he was unemployable because he hated Christianity or because he had a prejudice against Norwegians. His oddball, sardonic wit surely didn’t help, nor did his open contempt for economists and other academics. He clashed repeatedly with university authorities but also relished scholarly cut and thrust, calling himself “a disturber of the intellectual peace” and “a wanderer in the intellectual no-man’s land.”¹

It wasn’t all solitude, though. He was later ejected from the University of Chicago for marital infidelities with colleagues and students. As one story goes, the dean summoned Veblen into his office in 1905 for a chat.

DEAN: We have a problem with the faculty wives.

VEBLEN: Oh yes, I know. They’re terrible. I’ve had them all.²

Veblen’s womanizing prowess wasn’t due to his looks. Longish hair was plastered down on either side of a center part; bushy eyebrows and a roughly cut mustache and beard suggested he hadn’t tried very hard to discard his Norwegian peasant-farmer upbringing. One lover apparently described him as a chimpanzee. Others remembered a weird domestic charisma. “Lounging about in his loose dressing gown and looking not nearly as anemic and fragile as in his street clothes, he reminded one, with his drooping moustaches and Nordic features, of nothing so much as a hospitable Viking taking his ease at his own fireside,” a visitor recalled. “At such times, he was at his best, doling out curious information, throwing off a little malicious gossip which, in view of his seclusiveness, he must have picked miraculously out of the air, mixing picturesque slang with brilliant phrases of his own coinage, solicitously watching 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, as one biographer put it, “a sovereign power, endowed with resources rivaling those of governments.”

It takes time, Tarbell noted, to crush men who are pursuing legitimate trade:

But one of Mr. Rockefeller’s most impressive characteristics is patience. He was like a general who, besieging a city surrounded by fortified hills, views from a balloon the whole great field, and sees how, this point taken, that must fall; this hill reached, that fort is commanded. And nothing was too small: the corner grocery in Browntown, the humble refining still on Oil Creek, the shortest private pipe line. Nothing, for little things grow.¹²

In the early days of Rockefeller’s business operations, corporations weren’t allowed to do business across state lines, but he had found a loophole. He brought all his different state corporations together under the ownership of a trust, a flexible and powerful mechanism of central control that could operate at a national level and in great secrecy. (This is why anti-monopoly laws and actions have been known as “antitrust” measures ever since.) Through his trust mechanism, Rockefeller soon controlled over 90 percent of the oil refined in the United States, extracting vast wealth from consumers and generating fountains of profit, which were funneled beyond the core business into railroads, banking, steel, copper, and more.¹³ If this reminds you of today’s Amazon, you’re on the right track. It is no coincidence that Rockefeller was America’s biggest monopolist and also its first billionaire—and that Amazon’s boss, Jeff Bezos, is the richest person in world history. Monopoly was, and still is, where the big money is.

Rockefeller was in fact just one of several robber barons dominating the American economic landscape in Veblen’s day. There were monopolies in beef, sugar, whiskey, shipping, railroads, steel, cotton, textiles, and furs, and the rulers of these fiefdoms amassed fortunes so great that their names (Rockefeller, Carnegie, Vanderbilt) still resonate today.

But one force eclipsed them all, a financial monopoly. In 1913, nearly a decade after Veblen published The Theory of Business Enterprise, a US congressional committee produced its now famous Money Trust Investigation, a report exposing a grand conspiracy of American business leaders to rig half the national economy. Rockefeller was implicated, but it was bigger than him or Standard Oil. The Money Trust documented a monstrous interlocking lattice of at least eighteen major financial corporations and more than three hundred crosscutting directorships and secret lines of control that governed much of industrial America and manipulated the financial clearinghouses and the New York Stock Exchange.¹⁴ It was based on a rogues’ charter known insidiously as “banking ethics,” by which the conspirators agreed not to compete with one another. Atop it all sat a banker, John Pierpont Morgan.

The report warned chillingly that there were forces more dangerous than monopoly in industry: the greater danger was monopoly in finance, control of the means by which credit was allocated to industry and across the economy. If you controlled credit, it warned, you controlled it all. “The acts of this inner group [have] been more destructive of competition than anything accomplished by the trusts, for they strike at the very vitals of potential competition in every industry that is under their protection,” it said, adding, “The arteries of credit [are] now clogged well-nigh to choking by the obstructions created through the control of these groups.” Finance doesn’t have quite the same brutal style or degree of control today, but as this book will show, it has gone a long way in this direction.

When the Money Trust report went public, national fury ensued. Political cartoonists drew octopuses with their tentacles wrapped around buildings, men in top hats grasping the globe, bankers sitting on sacks of money while the poor queued up to hand them their savings. Devils with pitchforks pranced with bags of cash. A scowling eight-armed J. P. Morgan cranked eight handles turning machinery inside eight banks; or he was a giant Pied Piper, leading great crowds in a merry dance into the wilderness. Louis Brandeis, the best-known lawyer of Veblen’s era, summarized the report’s findings with a perfectly aimed metaphor for the wealth extraction:

The goose that lays the golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by someone else’s goose. The investment bankers now enjoy that privilege. The dominant element in our financial oligarchy is the investment banker.… We must break the Money Trust or the Money Trust will break us.¹⁵

Brandeis pointed to something else too: a lesson that recurs again and again in the story of the finance curse. At the heart of all the extraction and predation there usually lies a genuinely useful function. The central problem isn’t finance but too much finance, the wrong kind of finance, and finance that is too powerful, unchecked by democracy.

Beyond monopolies, there were many other varieties of sabotage around in Veblen’s time, many of which were international in scope. One of the biggest, which the Money Trust Investigation didn’t even mention, also involved Morgan’s bank. This saga began in 1899, when William Cromwell, Morgan’s legal counsel, incorporated a new company, the Panama Canal Company of America. At the time, Panama was a province of Colombia and had a profitable railroad running across the narrow isthmus connecting North and South America. Cargo ships could unload on the Atlantic side, have their goods shipped by rail to the Pacific coast, and avoid sailing around the entire South American continent. President Theodore Roosevelt, in league with Morgan, armed and supported separatists who wanted to wrest Panama away from Colombia and get their hands on those lucrative rail transit fees. And if they could build a canal to replace the railroad, why, the profits would multiply. To cut a long conspiracy short, Panama won independence from Colombia, but only under effective US control. The Panama Canal opened in 1914, and the new country’s first official fiscal agent was J. P. Morgan. “Wall Street planned, financed and executed the entire independence of Panama,” summarized Ovidio Diaz Espino, a former Morgan lawyer who wrote a book about the affair entitled How Wall Street Created a Nation. This episode “brought down [the] Colombian government, created a new republic, shook the political foundations in Washington with corruption and gave birth to American imperialism in Latin America.”¹⁶

Essentially, Wall Street interests had harnessed their government’s military resources to build and operate a mighty tollbooth at the biggest choke point in one of the world’s great trade arteries. Communities of American financial toads soon became happily ensconced there, with the flies and spiders of Veblen’s imagination replaced by giant ships. In 1919, as Panama was taking the first steps in setting up its deregulated, ask-no-questions shipping registry, Veblen summarized the game, where the wealth extractors got their government to support them as if it were its patriotic duty:

In this international competition the machinery and policy of the state are in a peculiar degree drawn into the service of the larger business interests; so that, both in commerce and industrial enterprise, the business men of one nation are pitted against those of another and swing the forces of the state, legislative, diplomatic, and military, against one another in the strategic game of pecuniary advantage.¹⁷

This was sabotage, he said, appealingly wrapped in the flag. To help the national champions “compete” on a global stage, the common man must shoulder the burden and, in doing so, should be made to swell with patriotic pride.

Veblen wasn’t talking about Panama, but he might as well have been. And he identified what was then and remains today one of the most important and misunderstood themes of international finance: the “competitiveness” of nations. This term could mean many things, but Veblen understood that big banks and businesses loved to promote a particular meaning of the term, which I call the “competitiveness agenda.” Under this view, America is in some sort of giant global economic race, in which our biggest international firms must constantly be given subsidies—corporate tax cuts, deregulation, a free pass to let them build monopolies or abuse their American suppliers or employees, or whatever—in order that they can better compete in this race. If we don’t give them these handouts, these interests warn, they’ll run away to more “competitive” places like London, Hong Kong, or Geneva. I will show how this competitiveness agenda goes a long way toward explaining why some modern banks are too big to fail, why big bankers are too important to jail, why our schools aren’t getting funded, why your favorite local bookshop closed down, and why tax havens seem so hard to tackle. I’ll expose the fallacies, misunderstandings, and hypocrisies that underpin the competitiveness agenda and reveal it to be one of the most confused and dangerous economic myths of all time.

Veblen understood these fallacies clearly, even if he couldn’t anticipate all the various schemes that financialized capitalism would create. One of these was the world of offshore tax havens, a tool of sabotage that was in its infancy in Veblen’s day. There’s no general agreement as to what a tax haven is, though the concept can usefully be boiled down to “escape” and “elsewhere.” You take your money or your business elsewhere—offshore—to escape the rules and laws at home that you don’t like. These laws may involve taxes, disclosure, financial or labor regulations, shipping requirements, or whatever, so “tax haven” is a misnomer; these places are about so much more than tax.

Let’s take tax and a classic tax haven trick that had already begun to emerge in Veblen’s day called “transfer pricing.” Imagine it costs a Spanish multinational $1,000 to produce a container of bananas in Ecuador, and a supermarket in Santa Barbara, California, will buy that container for $3,000. Somewhere in this system lies $2,000 in profit. Now who gets to tax that profit? Well, the multinational sets up three subsidiaries: EcuadorCo in Ecuador, which produces the bananas; USACo in the United States, which sells the bananas to the supermarket; and PanamaCo, a shell company with no employees and based in a tax haven. These companies inside the same multinational sell the container to each other: first, EcuadorCo sells it to PanamaCo for $1,000, then PanamaCo sells it to USACo for $3,000. Where does the $2,000 profit end up? Well, it cost EcuadorCo $1,000 to produce the container, but it sold the container for $1,000 to PanamaCo, so there’s zero profit—hence no tax—in Ecuador. Similarly, USACo bought the bananas from PanamaCo for $3,000 but sold them to the supermarket for $3,000, so there’s no profit or tax in the United States either. PanamaCo is where the action is. It bought the container for $1,000 and sold it for $3,000, making $2,000 profit. But because it’s in a tax haven, the tax is zero. Presto! No tax anywhere!

In the real world it’s obviously much more complicated than this, but this is the basic concept, and indeed Panama was one of the pioneers in this game in Veblen’s lifetime. It’s clear that nobody anywhere in this financial game has produced a better, more efficient way to grow, transport, or sell bananas. This is simply wealth extraction: a shift of wealth away from taxpayers in both rich and poor countries toward the businesses and some lawyers’ and accountants’ fees. But it’s also sabotage, because it rigs markets in favor of the large multinationals who can afford to set up these expensive international schemes, at the expense of their smaller domestic competitors who can’t.

Two brothers who became pioneers of this kind of multinational tax strategy were Edmund and William Vestey, who founded the Union Cold Storage Company in Liverpool, England, in 1897. Meat monopolists extraordinaire, the Vesteys ran cattle operations in South America at one end, where they crushed the unions on their extensive holdings. At the other end, in Britain, they crushed rival meat traders—including one of my great-great-uncles¹⁸—and monopolized the retail trade. In between, they dominated certain shipping lines, not least through their Panama Shipping Company Inc., and rigged the international tax system in their favor. “If I kill a beast in the Argentine and sell the product of that beast in Spain,” William Vestey taunted a British royal commission in 1920, “this country can get no tax on that business. You may do what you like, but you cannot have it.”¹⁹

From those early beginnings in the 1920s, tax havens would grow to offer a wider ecosystem of market-cornering possibilities. And with the growth of mobile global finance, particularly after the 1970s, the possibilities for sabotage would multiply, in the United States and around the globe.

As the twentieth century progressed, Veblen’s views that sabotage and wealth extraction were central organizing principles of capitalism would be vindicated again and again. Take, for instance, the great American streetcar scandal, when a consortium of oil, bus, car, and tire companies came together in a loose arrangement to buy up streetcars and electric mass-transit rail systems in forty-five major US cities, then kill them off. (The scandal inspired the Hollywood film Who Framed Roger Rabbit.) Antitrust lawyers argued that the ensuing destruction of rail-based urban transport was part of a “deliberate concerted action” to push America into dependency on cars, buses, tires, and oil. To the extent that they were right, this helped pave the way for, among other things, massive climate change.

Financial players also sabotage markets where we buy and sell stuff all the time. The less regulated these markets are, and the less attention regulators pay, the more rigging. That helps explain why, when regulators’ attention was elsewhere engaged during the financial crisis, crude oil prices rose from $65 a barrel in June 2007 to nearly $150 in July 2008. Yet this happened amid falling demand and a world oil glut, exactly the opposite of what the textbooks tell us ought to happen. On September 22 alone, the price rose over $18 a barrel, then dropped nearly $15 the next day. By December, it was down to $30, then back up over $70 by the following June. An internal Goldman Sachs memo in 2011 suggested that speculation accounted for about a third of the price of oil—equivalent to $10 extra on every American driver’s fill-up. The speculators weren’t buying up actual barrels of oil to sell them later at a profit, not least because there are physical limits on just how much oil there is available to buy. Instead they were employing financial instruments, which can be used to bet without limit: one bet piled upon another, upon another. Each bet tends to push the oil price either up or down. This created unreasonably large price swings, which were then worsened by herd behavior: if Goldman Sachs was buying, people reasoned, then they ought to as well. As hedge fund officials and other market watchers noted, the mayhem—which ricocheted to oil consumers around the world—greatly benefited large financial players, who had the best information to buy and sell ahead of everyone else: they made out like bank robbers.

Meanwhile, in the aluminum market, Goldman Sachs indulged in some bizarre market sabotage when in 2010 it bought up Metro, a metals storage company regulated by the London Metal Exchange, the standard-setter for the aluminum industry. Before the purchase, customers who bought aluminum from Metro had to wait some forty days for it to be delivered from the warehouse, but within a couple of years they were having to wait ten to fifteen times as long—674 days at one point, according to investigations by the US Senate and the New York Times. Metro’s customers would also have to pay to store the aluminum for two years before they could get their hands on it. What is more, prices went haywire. MillerCoors, a big user of aluminum for drinks cans, reckoned the dysfunctional market had imposed an extra $3 billion cost on users; some industry experts estimated American shoppers had paid $5 billion extra from 2010 to 2013 through a thousand tiny price hikes in the cans, automobiles, and other aluminum products. Over this time, Goldman was ramping up its trading of financial products linked to aluminum, and other players—notably Germany’s Deutsche Bank, JP Morgan, a British hedge fund called Red Kite, and the Swiss-based commodity trader Glencore—inserted themselves into and milked this strange market. All of this was overseen and approved from London, a den of rogue regulators that we’ll meet properly in chapter seven and that hosts the London Metal Exchange.²⁰

Britain also provides an even more blatant, brazen example of sabotage. There, a unit of Britain’s giant Royal Bank of Scotland used the crisis to hit thousands of fragile small businesses with crippling, unexpected fees, fines, and interest-rate hikes. It became known as the bank’s “Vampire Unit”: under its Project Dash for Cash, financial terms were engineered to make more struggling businesses fail, so it could get hold of their assets cheaply. “Rope: sometimes you need to let customers hang themselves,” one internal bank memo said. An independent report said the bank wasn’t alone either: it found “profiteering and abhorrent behavior” all across retail banking. “Some of the banks,” it said, “are harming their customers through their decisions and causing their financial downfall.” This sabotage led to family breakdowns, heart attacks, and suicides.²¹

Veblen made an observation about such behavior that remains relevant today. The fountains of profit that can ensue from this kind of rapacity and market rigging underpin what he sneeringly called “business sagacity.” We hear “business sagacity” every day from the leaders of politics, industry, and finance. We hear it when CNN or Fox brings out know-nothing bankers or financial pundits to applaud the latest merger-driven rise in the stock market, the latest deregulatory or tax-cutting gift to Wall Street, or a surge in banker bonuses or private equity activity, as if these things benefit the country.²² To the extent that these soaring profits are extracted from the veins of our economy, they are signs of rigged markets and economic atrophy, not health. As Veblen famously put it, “business sagacity reduces itself in the last analysis to the judicious use of sabotage.”

Veblen and Tarbell were often pilloried by their contemporaries, yet they were both proved correct again and again, throughout the twentieth century and beyond. After her exposé of Standard Oil, Tarbell was vilified by sections of the media. “The dear girl’s efforts … are pathetic,” wrote one academic. She and her followers were “sentimental sob sisters,” wrote another. Rockefeller called her “Miss Tar Barrel,” a socialist, and “that misguided woman.” She pretended to be fair, he said, but “like some women, she distorts facts … and utterly disregards reason.” The vilification made her long to “escape into the safe retreat of a library” and be liberated from “harrowing human beings confronting me, tearing me.”²³ But in 1911 her investigations bore fruit. Standard Oil was broken up into thirty-four different companies, to become the forerunners of today’s oil giants ExxonMobil and Chevron, and even a part of British Petroleum. The breakup didn’t last, though: at a meeting in 1928 at Achnacarry Castle in Scotland, the heads of some of the biggest fragments of Standard Oil got together with some foreign rivals and hammered out a secret criminal deal to carve up the world’s oil industry into profitably collaborating fiefdoms.

Veblen died in 1929, a few weeks before the great financial crash vindicated his big ideas. The crash, and the ensuing turmoil, fed dark forces that eventually plunged the world into bloody global warfare, still in the lifetime of Tarbell, who died in 1944. The work of Tarbell and Veblen, and history, contain warnings: these great financialized malignancies of capitalism must be tackled.