In 2005, Citigroup circulated among its wealthier investors a brochure called "Plutonomy: Buying Luxury, Explaining Global Imbalances," which noted, "The World is divided into two blocs – the Plutonomy and the rest." (1)  In other words, the rich could invest and live in their own economic world and essentially ignore the less fortunate.  The less fortunate, however, cannot escape the negative consequences of economic transactions and political decisions influenced by the Plutonomy, which tend to produce numbers of people who are surplus to the economy.  The continuing political debate about "marketplace freedom" versus "big government" tends to avoid the realities in which these ordinary people live their daily lives.  The following analysis will attempt to address this shortcoming by reviewing several private sector behavior patterns that engage in amoral manipulation of ignorance and necessity for private profit.

    Consider how negotiated agreement is reached to buy a house or a car.  The initial offer is always below the asking price, and typically below what the buyer might ultimately be willing to pay.  Likewise, the asking price is typically higher than that which might be accepted by the seller.  In both cases deception is involved.  What is the morality at play in this situation? 

    The answer is clarified if we consider how Jesus might generate maximum profit from the capital and sweat investment in His carpentry business.  If a customer came in to buy, would Jesus deceptively set an initial price for the item higher than the minimum He would accept, or would he immediately declare the lowest price He would take for the item, thereby barely surviving as a businessman?  Or, would Jesus take unfair advantage by using His power of omniscience, as a kind of insider trading ability, to determine the highest price the buyer would sustain and price accordingly, thereby "driving a hard bargain" without having to bargain?  Merely imagining Jesus making business deals in the marketplace makes clear that there are no Christian values or morality involved.  Whatever works to produce profit will be done, not "Thy will be done," nor "Do unto others as you would have them do unto you." (2) Ayn Rand, the anti-Christian author/philosopher, is correct in identifying and promoting profit seeking self-interest as the amoral center of marketplace transactions.

    Deception rules in the larger field of advertising as well.  The familiar oath when testifying in court is to tell "the truth, the whole truth, and nothing but the truth."  The "whole truth" means providing the negative as well as the positive information.  "Nothing but the truth" forbids clever words that distort or stretch the truth.  An examination of the results of the half trillion dollars spent each year in the United States to advertise and sell private market goods and services would find no example that meets all elements of the truth criteria, save those restrained by government regulations (as with prescription drugs).  Deception is the rule, from typical buyer-seller bargaining on Main Street up to the financial giants of Wall Street, who have testified before Congress that admittedly deceptive marketing practices were not reprehensible enough to constitute prosecutable fraud.  Truth is not a corporate value if it interferes with profit.  In the marketplace, it is only necessary to preserve the appearance of truth telling to be successful, keeping corporate image makers and public relations firms very busy, and Main Street citizens mostly contented with their lot. (3)

    Deception helps to make winners and losers in the marketplace.  Many of the losers in this morality-free economic arena become the surplus people that are left out, left behind in their station in life, or left worse off and even destitute.  They include those caught in the housing market crash who were steered to loans with higher than normal interest rates, those sold property that had artificially inflated appraisal values, and those who had their mortgage transactions disappear into the Mortgage Electronic Registration System (MERS) that, after the 2008 market crash, led to the illegal robo-signing of fake mortgage documents that were the subject of civil suits and criminal investigation in 2012. (4)  There would be an even larger surplus of abused people were it not for occasional watchdog action by Better Business Bureaus, regulation and prosecutions by government, and a helping hand from publically and privately funded assistance programs. 

    The result of routine deception in the marketplace presents one pattern of the differential impact of economic freedom.  Winners from deceptive practices not only have more freedom than the losers, they also gain the unjustified fruits of deception. (5) Although Goldman Sachs and Citigroup have recently paid hundreds of millions in fines for their pre-crash deceptive practices (while not admitting any wrongdoing), their executives still retain millions in salary and bonuses that were derived from these abusive transactions.  These fruits, as a final insult, were likely taxed at a rate lower than that paid by many of the surplus people caught up in the underlying mortgage crisis.

    Size matters.  Economic power compounds just like interest, as efficiency gains from increased scale provide more power to use or abuse.  But a Google search for "economic size" results, surprisingly, only in discussions about economies of scale.  There are no correlation propositions or factor analyses that purport to explain the details of how market domination increases the bottom line.  Market fundamentalists and libertarians assert that government rules and regulations are the heaviest restriction on voluntary exchange in the marketplace.  A brief examination of the empirical record, however, will reveal that this ideological position may well be principled ignorance not grounded in the whole truth of the matter. (6)   

    From biblical times to the present, wealth has tended to concentrate.  The ill effects of this tendency inspired the biblical institution of the 50th year Jubilee forgiveness of debts, giving those crushed by such burdens freedom to improve their lot.  In more recent times, Adam Smith, in The Wealth of Nations, acknowledged the negative effects of concentrated economic power in noting that "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."  As revealed in the antitrust court case United States v. Microsoft, internal Microsoft communications took place about rigging the PC operating system and employing restrictive licensing agreements so as to make it difficult, if not impossible, for competing internet browsers, such as Netscape, to function as a usable alternative to Internet Explorer.  Despite agreeing to a settlement in this monopoly power abuse case, Microsoft CEO Bill Gates never admitted to any wrongdoing, confirming that business practices that restrict freedom or eliminate smaller competitors constitute business as usual. (7)  As many computer users have lamented over the years, including those who use Apple products, these abusive monopoly practices have allowed inferior products to dominate the PC market while inflating the costs to users. 

    Efforts by the giants of the tech industry to extract unearned profit or to eliminate the smaller surplus competitors continue.  Microsoft and Google, among others, are spending billions of dollars to buy hundreds of patent rights, many of which are vague or unclear, so as to collect fees under threat of litigation and to challenge innovative variations on existing technology in the field in expensive lawsuits.  According to patent expert Jim Bessen, the big loser is innovation itself, because such maneuverings are "corporate warfare, not actual competition in the marketplace." (8) This fencing in of markets freezes job growth by making it more difficult to start new companies or to grow existing small firms up to scale. 

    Bigger corporations are also in a better position to dictate terms to suppliers, creating downward pressure on wages and discriminating against the profitability of other potential buyers who cannot secure such deals or who are locked out by exclusive contracts.  One observer has concluded that workers and unions should be forming alliances with small businesses to combat the common enemy of monopolistic business practices. (9) 

    Actual competition in the marketplace does lead to other negative consequences—job losses, wage declines, benefit cuts, outsourcing, widening inequality, drift toward on-call "permatemp" employment, and community disruption—that are simply the result of the pressures of "supercapitalism" to increase sales to customers and to maximize profits for investors. (10) The accompanying decline of union representation in workplace decisions makes it easier for business calculations to monetize people, to give them the same status as machinery, and then to deal with them as the surplus collateral damage of capitalism. 

    Another source of surplus labor results from the famously controversial practice of leveraged buyouts by private equity (PE) firms.  To help clarify some of the issues that surround PE activity, let's examine a hypothetical investment option.  What better example for the purported benefits of capitalistic creative destruction than the classic buggy whip manufacturer of 20th century lore? 

    Imagine Company A, operating a buggy whip business as in the late 19th century.  The management team uses part of its profits to research potential leather components for horseless carriages, such as seat cushions, arm rests, and dashboards.  Initial development efforts reveal that their leather working skills and materials can be modified to take advantage of the emerging market for a wider range of leather products.  Over the next few years, Company A sacrifices short-term profit and dividend payouts while they reconfigure their capabilities for both production and marketing to meet the growing demand.  Long-term prospects are good for company A as it undergoes an internal creative destruction process, using a shared stakeholder model in which workers and owners succeed or fail together.

    Now imagine Company B, which undergoes an external creative destruction process of its buggy whip business.  A PE firm looking for opportunities to maximize its return on investment negotiates a buyout offer for company B, using only a small percentage of its own capital and loading company B with a large debt to finance the remainder, including a transaction fee for the PE firm.  That the interest on the debt load is tax deductible is a generous (IRS interpreted) subsidy for the transaction, and because the deal is based largely on borrowed money for its holding, there is little risk for the PE firm.  The new management team examines the financial spreadsheets and determines that research and development expenditures can be canceled, and that one-quarter of the work force can be terminated.  As a result, both productivity per worker and profits for the next year are higher, which boosts company value.  The PE investors are rewarded with a dividend payout along with management fees, consulting fees, monitoring fees, and later, a termination fee.  Production is streamlined with a faster assembly line and relaxed tolerances on finished products, which results in higher output per worker.  Additional financial engineering results in termination of pension plan contributions and a reduced advertising budget.  Profits continue to climb in the coming year.  Financial analysts are asked to give company B a higher bond rating, which allows more debt to be loaded on.  This permits additional dividend payouts for the PE firm, which essentially is a transfer of wealth from its holding to itself (a "harvesting" strategy pioneered by Bain Capital).  By this time, the PE firm has recovered its initial capital investment plus considerable profits beyond.  After another year or two of this pattern, Company B is offered for sale and is purchased by another PE firm that hopes to repeat the wealth extraction process.  In a few more years, the market for buggy whips goes into serious decline.  With its heavy debt load and lack of innovation, Company B files for bankruptcy under a code that, unlike that for individuals, makes it relatively easy to escape liabilities owed to the original investors, who now join the unemployed workers as surplus people. (11) 

    Free market purists would still call this a successful creative destruction outcome of capitalism because it eliminated the outdated buggy whip business of Company B.  This PE business model might be also be defended by, say, columnist George Will, who would see it as an act of capitalism that "…performed the essential function of connecting investment resources with opportunities," which "…are indispensible for wealth creation." (12) For the original company B investors and the surplus workers, however, its demise would be all destruction and no creativity.  There were other options available, as the shared stakeholder pattern of Company A illustrates.  The extraction by a PE firm of excessive dividends and fees from a company that shortly thereafter goes bankrupt applies a Plutonomy-friendly set of rules that are entirely legal under current law as shaped by business sector lobbying power.  But as at least one among the gaffe-prone Republican presidential primary candidates noted ("gaffe" being a term of usage for "unintentional truth telling"), it is the kind of vulture capitalism that gives capitalism a bad name.  It is an amoral, predatory transaction pattern, with wealth extraction masquerading as "earnings," that a society that claims to foster human dignity and religious values of social justice would seek to constrain.  Meanwhile, the potential for surplus people creation goes on as the PE industry now controls some $3 trillion in global assets and more than 14,000 American companies. (13)

    The list of the many types of economically surplus people created in the name of capitalist wealth creation, and in the name of economic freedom and low taxes, is too long to present completely.  The breadth and consequences of it, however, are revealed in a comparison among developed market democracies along a range of indices for the quality of life.  Compared to the nineteen richest countries of Europe and Canada, the United States  ranks in the bottom third on the UNICEF Report Card for the material well-being of children, in the middle third for education, and dead last for the health and safety of children. (14) Additionally, income inequality between the rich and the rest has been growing since the 1980s: from 1986 to 2009, the share of national income for the top ten percent has increased in constant dollars from 39.13 to 44.95 percent, while the bottom fifty percent of Americans have seen their meager share decline from 15.55 to 13.29 percent, as reported by the IRS. (15)  As the income gap continues to grow, in the age of the Citizens United court case the opportunities for the Plutonomy to sway American political debate will also grow, especially in off-year elections when the organizational efforts of presidential campaigns are absent.  As a result, the nation as a whole will become less efficient in solving its problems as it attempts to cope with office holders devoted to ideologically inspired ignorance of economic reality.

    Unless these negative political economy trends of recent decades are reversed, we can expect that the number of people who are made economically surplus will continue to increase as they are deceived and bullied in the marketplace to meet the needs of short term global profit making.  The continuing political struggle between people power and the money power of the Plutonomy will decide whether traditional public morality standards will be applied through the democratic process to restrain and compensate for the negative realities of routine marketplace transactions. (16) If they are not applied, the United States will continue its Plutonomy-propelled shift from moral market democracy toward amoral market plutocracy as the new normal.

May God help America. 

(1) Quoted in Noam Chomsky, "Plutonomy and the Precariat," www.huffingtonpost.com, May 9, 2012.

(2) In the Middle Ages "merchant" and "Christian" were nearly mutually exclusive terms.  An analysis of the amoral position is presented by Gary Moore, "Ayn Rand, Goddess of the Great Recession," Christianity Today, September, 2010.
 
(3) For context see Robert Trivers, The Folly Of Fools: The Logic of Deceit and Self-deception in Human Life (New York: Basic Books, 2011).  Also Oren Bar-Gill, Seduction By Contract: Law, Economics, and Psychology In Consumer Markets (New York: Oxford University Press, 2012).

(4) Bethany McLean and Joe Nocera,  All The Devils Are Here: The Hidden History of the Financial Crisis (New York: Portfolio, 2010).  Post-crash deceptions are noted by Paul Krugman, "Another Inside Job," New York Times, March 13, 2011.

(5) Joe Nocera, "Libor's Dirty Laundry," New York Times, July 6, 2012.  Sam Gustin, "Social Media Meltdown: Insiders Made a Fortune. Others? Not so Much," Time, September 10, 2011.      

(6) As Upton Sinclair noted:  "It is difficult to get a man to understand something when his salary depends on his not understanding it."

(7) Gresham's Law of ethics:  Bad behavior drives out good behavior.

(8) Quoted by Sam Gustin, "Patent Wars! Why tech titans are fighting over intellectual property," Time, April 23, 2012.

(9) Barry C. Lynn, "The Real Enemy of Unions," Washington Monthly, May/June, 2011.

(10) Robert B. Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Vintage, 2008).

(11) For a survey of dozens of firms subjected to the company B model, see John Kosman, The Buyout Of America: How Private Equity Will Cause the Next Great Credit Crisis (New York: Portfolio, 2009).  Chapter six, "Plunder and Profit," is devoted to the activities of Bain Capital.

(12) George Will, "Gingrich's capital offense: Attack on Romney's past disturbingly inaccurate," Charlotte Observer (From Washington Post Writers Group), December 15, 2011.

(13) Julie Creswell, "In a Romney Believer, Private Equity's Risks and Rewards," New York Times, January 21, 2012.

(14) Report Card 7, "Child Poverty In Perspective: An Overview Of Child Well-being In Rich Countries," UNICEF, 2007.  Accessed at www.unicef.org

(15) SOI Bulletin – Table 7, accessed at www.irs.gov (search "statistics").  A more extensive examination of these issues is presented by Jacob S. Hacker & Paul Pierson, Winner-Take-All Politics: How Washington Made the Rich Richer – And Turned Its Back on the Middle Class (New York: Simon & Schuster, 2010).

(16) Chrystia Freeland, "Plutocrats vs. Populists," New York Times, November 1, 2013.  John Nichols and Robert W. McChesney, "Dollarocracy: The squabbling of Democrats and Republicans has become a sideshow to the theater of plutocracy," The Nation, September 30, 2013.  A new challenge (as of 2013) to the Ayn Rand moral position on private market transactions is presented by Pope Francis.  Among many references a convenient one is the "Person of the Year" article in Time, December 23, 2013.
 

                                         
     Roland F. Moy earned the Ph.D. in political science from The Ohio State University.  After teaching for 30 years, primarily in the field of international studies, he retired from Appalachian State University in 1998.  In addition to participation, presentations, and office holding in professional organizations, he was active in organizing Model United Nations events each year for both high school and college students.

     As a life long singer, he continues a family tradition and has been active with the local Arts Council over a thirty-four year period in organizing/producing musical shows to raise funds for music scholarships, and in producing fifteen annual summer community chorus events. 

     Since joining the Torch Club in Boone, North Carolina in 2007, Moy has developed several papers that apply a core political science concern about abuse of power to the related field of economics, one of which follows. It was originally presented in May 2012.

     One of Moy's earlier papers won the 2012 Paxton Award.