The Untold Story

Curse You, Supply and Demand!

May 07, 2014

Multiple Pages
Curse You, Supply and Demand!

Like many pundits opining upon French economist Thomas Piketty’s new book about how the rich always get richer and something has to be done about it, Capital in the Twenty-First Century, I haven’t actually read it.

But that’s not my fault: I blame capitalism! The capitalist system didn’t print up enough copies, and since nobody in the publishing industry seems to have ever heard of adjusting prices to balance supply and demand, the book has been on back order at Amazon and at my local Barnes & Noble.

Everybody wants to talk about income inequality, but I’m more interested in standard of living. That, of course, has two components: how much I can make, and how much I have to spend.

Something I haven’t seen mentioned in all the discussion of Piketty: Near whom would you rather live, the rich or the poor?

I’ve spent much of my life in narrow middle-class corridors between them. For example, if I stand on my front porch and crane my neck, far to the south I can make out a 17-bedroom house clinging to a Hollywood Hills cliff that was built by Goldie Hawn and Kurt Russell (and then almost immediately abandoned by them when the 1994 Northridge earthquake scared them into moving back to Malibu). A similar distance to the north of me are the dreary apartment complexes of North Hollywood and Sun Valley.

“Billionaires want more immigration so they can pay lower wages, but anybody who mentions that is an evil person, unlike, say, the Mexican oligarch who profits exorbitantly on calls placed between illegal immigrants and their loved ones in Mexico.”

So, I’ve known rich and I’ve known poor, and when it comes to neighbors, I have to say, the rich have been cheaper for me. The children of movie stars don’t flood the local public schools, inducing me to ante up for private school tuition; they don’t spray graffiti on my street; and they don’t pack into emergency rooms for “free” medical care that gets added to my bill.

The rich don’t even take up all that much space these days. Nobody who wasn’t movie star-rich could afford to build on that mountainside, but the poor take up vast expanses of good flat land in Southern California. (The chief problem with being poor today is not that you can’t buy enough stuff, but that you can’t get away from other poor people.)

Now, all this would be very different if today’s rich dwelled not in 17-bedroom houses, but in 170-bedroom houses on multiple square miles of landscaped gardens, as did 18th-century English aristocrats.

For example, Winston Churchill was born in 1874 in Blenheim Palace, the 300,000-square-foot monument that John and Sarah Churchill, the first Duke and Duchess of Marlborough, erected to themselves in Oxfordshire in the early 1700s. Blenheim’s ponderous baroque architecture has often been criticized, but the grounds designed by landscape architect Capability Brown are indisputably sublime.

Now, that’s inequality.

According to Piketty, the rich automatically get richer because, you see, r is greater than g. So inevitably we’ll be back to the world of Jane Austen, where poor Elizabeth Bennett can only get rich by marrying Mr. Darcy.

Extravagances like the stately homes of England made economic sense before the 19th century because the relative wages of servants and construction workers mostly fell from 1500 to 1800 as the supply of English workers slowly recovered in size from the Black Death of the 1340s.

But, outside of economic theory, the rich have often tended to get poorer, especially when they spend more than they make. It’s a common theme in English literature (Evelyn Waugh’s A Handful of Dust) and television (Downton Abbey). For instance, by the time of Winston Churchill’s birth in 1874, the English ultra-rich weren’t getting richer.

One way to get a sense of inequality in different eras is to look at lists of luxury artifacts by date created. For example, giant country houses in England required low construction wages to build and low servant wages to keep up. There are numerous long lists of the stately homes of England, but here’s a short one of the ten that make up the Treasure Houses marketing consortium, including Blenheim, Castle Howard (a.k.a. Brideshead), Chatsworth, and Leeds Castle.

The latest date I can find for any of them for a major expansion is 1823. Most seem to go back to the Whig grandee era of the late 17th and early 18th centuries. That fits with research showing that English inequality in standard of living stopped increasing after about 1820.

The long agricultural depression of 1873-1896 meant the great houses of England began falling apart. Wings had to be shut as servants found higher paying jobs in factories. Repairs could not be paid for.

The usual solutions were to first auction off the art collection, then marry American heiresses, as in Downton Abbey, where Countess Cora, played by Elizabeth McGovern, is from the Chicago Levinsons. Winston’s mother Jenny was from the Jeromes of Wall Street.

The most famous English-American union of the era was the loveless marriage of 1895, between Churchill’s cousin, the 9th Duke of Marlborough, and the beautiful Consuelo Vanderbilt, the New York railroad heiress, whose suffragette mother was ravenous for a title for her obedient daughter. The Duke received $2.5 million from his new American father-in-law, which sufficed to refurbish Blenheim.

Another problem faced by the latter-day rich was that corruption was less well tolerated. The 1st Duke of Marlborough had been allowed by Queen Anne to skim 2.5 percent off the top of the wages he paid his soldiers during the decade-long war with King Louis XIV, for a total of £280,000. The only thing unusual about this arrangement was that the British public got decent value for their money from the Duke, who repeatedly trounced the French.

Latter-day leaders weren’t as lucky. Dwight Eisenhower was roughly as successful a general and politician as John Churchill had been, but the farm Eisenhower retired to in Gettysburg doesn’t look anything like Blenheim.

Winston Churchill inherited the aristocratic tastes of his ancestor, but not his opportunities for graft. He tried to maintain his 19-bedroom house, Chartwell, and his much put-upon staff of 25 upon his journalistic earnings. In 1938, Churchill put Chartwell up for sale to meet his debts, but Sir Henry Strakosch secretly gave him the value of the house.

Servants had steadily become more expensive in England. One reason was the increase in jobs elsewhere in a modernizing economy. On Downton Abbey, to illustrate, a maid applies for a job in town as a secretary, which is a much better post.

A forgotten reason, though, was that the massive emigration from the British Isles reduced the supply of workers and thus raised their wages. While Tony Blair’s Labor Government liked to claim that Britain had always been a nation of immigrants, it was in truth a nation of emigrants. Today, there are perhaps two or even three times as many people descended from the British Isles living in the United States, Canada, Australia, New Zealand, South Africa, and Argentina as there are in Britain and Ireland. Without all that outflow, wages in Britain would be lower and land prices astronomical.

The most obvious example showing that Piketty is right about the ability of the rich to impose their prejudices upon the political process is this: Billionaires such as Mark Zuckerberg and Carlos Slim, who bailed out the New York Times in 2008, have largely succeeded in shutting down open debate over immigration policy in America.

Billionaires want more immigration so they can pay lower wages, but anybody who mentions that is an evil person, unlike, say, the Mexican oligarch who profits exorbitantly on calls placed between illegal immigrants and their loved ones in Mexico.

It’s a spectacularly obvious version of what Piketty is talking about, but of course he doesn’t dare bring it up.

 

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