The Good Rentier

Max Beckmann 'Party in Paris' 1947

There is a deep flaw in the centrepiece political argument of Thomas Piketty’s Capital in the Twenty-First Century. Piketty claims the rentier is the enemy of democracy. Yet there are two obvious ways in which wealth inequality and rentier wealth could be beneficial to democracy. The first relates to the likelihood that institutional designers will be more vigilant and insistent in updating safeguards against the distorting influence of money in politics once there is broad-based acceptance that wealth creation and wealth inequality are permanent, symbiotic features of democratic society. The second relates to the unique position of the rentier with secure independent wealth who lives off returns on capital or land. He or she is in some respects the ideal politician. The rentier can afford to be distant and detached from economic interests and to hold independent political convictions. He does not struggle to keep a business afloat, does not represent any business, and is presumably freer than the ordinary person to devote energies and time to affairs of state. 

John Kerry, rentier politician extraordinaire

At the height of the Ukraine crisis in March 2014 US Secretary of State John Kerry’s face was ashen and drawn. The BBC correspondent observed that while Kerry’s Russian counterpart “looked satisfied and called the talks very constructive, John Kerry just looked tired”. A well-known American stand-up comedian joked, “I wish the stewardesses on the plane would put some cukes on Kerry’s eyeballs while he’s sleeping like Bugsy, because he looks like a melted clock face in a Dali lithograph”. Kerry is no stranger to this stuff. He tolerated nastier remarks about his facial demeanour during the Syria crisis in 2013. 

US Secretary of State John Kerry, a decorated Vietnam veteran who campaigned against the Vietnam war, is -- by the standard definition -- a rentier. He has been listed as 23rd richest politician in the world. He was the richest US senator. Much if not most of Kerry’s wealth is patrimonial, i.e. it was inherited. Many of his capital investments are those of a typical rentier. Kerry could be lounging in pristine privacy and pleasure with his family on a 400-foot luxury yacht. Instead Kerry is out saving the world on a daily basis. Continual jet lag and anxiety about the responsibility he shoulders for averting a third world war simultaneously on Central European and Asia Pacific fronts sometimes make Kerry look somewhat stressed, serious, and sad. 

Why does Kerry make the effort? A wacky conspiracy theorist might say Kerry had privy knowledge of economic history data in Piketty’s book showing that two world wars handily destroyed the world’s excess rentier wealth. World wars are clearly the rentier’s worst nightmare, worse than bondholder haircuts, wealth taxes, and socialism put together. Is that why Kerry forsakes the deck hammock and loses sleep to prevent a third world war?

Doubtful. Kerry is much more likely to be doing his fine diplomatic work because, like all well-rounded, balanced and functional members of society, he is motivated by an individual combination of material interest (protecting his heritable investments?), status interest (maximising his power as a leading decision maker in ‘the greatest country in the world’), ideal interest (his passion for good capitalism or for the ideals of the Democratic Party?), and procedural interest (diplomacy is an easier means-to-any-end than war). 

Kerry’s wealth presumably gives him greater freedom than the ordinary man to pursue his material, status, ideal, and procedural interests, and to run the risks associated with devoting the better part of one’s life to politics, including intrusive public scrutiny. 

Yet as the sociologist Georg Simmel pointed out in his book The Philosophy of Money, there are paradoxes in these freedoms which are equivalent across all walks of life - “Peace from specific things is valuable or even bearable only if it is, at the same time, peace to engage in specific things.” 

If a manufacturer or landowner hands over management to someone else and becomes a rentier investing in art galleries or sports clubs, he does not thereby acquire a completely free existence. A rentier in politics who represents the public interest “loses secrecy and inaccessibility”, as Kerry has found. A peasant liberated by wage labour gains freedom from one thing but not liberty to do another. The civil servant who saved her pension in anticipation of a free life after retirement is disappointed. A tradesman who sells his burdensome business to have cash and freedom from stress will experience the “typical boredom, lack of purpose in life and inner restlessness of the rentier”. The typical rentier, concludes Simmel, is driven to “keep busy and to give a substantive content to his freedom”.

Blame the system, not the person

As I have argued here previously, Thomas Piketty’s objections to the rentier and excess wealth inequality are by and large moral and political rather than economic, yet neither is persuasive. What concerns us here is the politics. There is an everyman logic in Piketty’s professed “main concern”, expressed during an interview in April 2014 with Matthew Yglesias at Vox, that rentier wealth concentration makes it more likely “our democratic institutions can be captured by top groups”. 

Surprisingly few reviewers have taken Piketty to task over his centrepiece political-normative argument. Perhaps it is natural that attention focuses on the economics. Piketty is an economist. My suspicion, however, is that the book succeeds astonishingly well as a popular consumption item mainly because of the politics.

I will explain why I think Piketty’s political intuition is wrong, and why John Kerry’s position is closely aligned with the best opinions in political science and sociology. An interesting though neglected dimension of Kerry’s political persona is the openness and intelligence he showed when blaming the system -- not the individuals, nor the wealth -- for US money politics. Related problems of cronyism and rent-seeking might also be inferred from what Kerry said in his speech given upon leaving the Senate to take up the position of Secretary of State in January 2013:

"We must address the corrupting force of the vast sums of money necessary to run for office. The unending chase for money I believe threatens to steal our democracy itself. I've used the word 'corrupting' and I mean by it not the corruption of individuals but a corruption of a system itself that all of us are forced to participate in against our will… We should not resign ourselves, Mr. President, to a distorted system that corrodes our democracy and is contributing to the justifiable anger of the American people. They know it. They know we know it. And yet nothing happens. The truth requires that we call the corrosion of money in politics what it is -- it is a form of corruption and it muzzles more Americans than it empowers, and it is an imbalance that the world has taught us can only sow the seeds of unrest. The influence of money in our politics also influences our credibility around the world. And so, too, does the difficulty -- the unacceptable and extraordinary difficulty we have in 2013 operating the machinery of our own democracy here at home."

It can be remarked also in passing, in relation to his antipathy to rentiers, that Piketty should know better. His book mentions Vilfredo Pareto’s name 31 times. Pareto was a serious economist who plays an indispensable role at the heart of Piketty’s book, which essentially builds on methodologies for studying income distribution pioneered by Pareto. Joseph Schumpeter records that Pareto’s genius was fulfilled after his early retirement in 1893 from the professorial chair vacated by his mentor Léon Walras at University of Lausanne, and only thanks to an inheritance which allowed Pareto two creative decades as “the lone thinker of Céligny” in “resolute though hospitable seclusion in a shabby house full of cats”. Pareto, evidently important to Piketty, is a fine example of the social utility of the rentier. 

Get the institutions right, good rentiers will follow

  

Now we will find out why Thomas Piketty and Max Weber do not sing from the same hymn sheet. I explained in The Bad Rentier that Weber worried in 1917 about the economic effects in Germany and France of a swollen stratum of parasitic bondholder rentiers, and about the rentier financial-military interests which undermined parliament. At first sight this seemed to put Weber on side with Piketty. What I did not explain, however, was the context.

Weber shared John Kerry’s implicit view that the incentive and rule-generating framework of the political system matters more than motives and resources of individuals within it. Weber recognised as clearly as anyone that politicians are just as likely to ‘live off’ politics as to ‘live for’ politics. Politicians are no more selfless, idealist, or ethical than bureaucrats or regulators who compete for promotion and privileges: “Here as there, personal interests are usually at stake”. The relevant question is whether the procedures and organisational structure prevent negatively privileged or monopolistic and opportunistic behaviour among parties and politicians. By systematically separating private from public interests the modern state now makes it difficult as well as illegitimate for a politician to live off rather than for the state. 

Weber’s complaint when he raged against parasitic rentiers and middle class and public sector literati was that in Germany as in France occupational interest groups were gaining formal representation in parliament because of foolish ideas of intellectuals on the left of the political spectrum. There was, in effect, an alignment of communitarian, socialist, and rentier interests joined by their opposition to entrepreneurial capitalism. 

Weber fought against what we now call corporatism, an atavistic democracy in which parties and party programs incorporate representations of organised economic groups, typically trade unions, chambers of commerce, financiers, professional associations, and farmers. Parliament would be taken up with substantive issues that concern these functional groups rather than the general interest. In Weber’s words, “parliament would become a mere market place for compromises between purely economic interests, without any political orientation to overall interests.”

It should be obvious, the entrepreneurial market economy is undermined if economic classes or groups have political influence in the policy process. As Weber wrote, the real economy moves with “shifting sands of constantly changing operational units, trends in production and workforce, all of which are radically restructured in response to every new machine or market opening”. Corporatist states cannot adapt to these transformations because organised interests represented by the state are pitted against the “living stream” of the real economy. Consumers, whose demands should influence production in a market economy, are never represented by the corporatist state. 

The basic point is broad, quite clear, and goes beyond the Piketty Problem. The source of power of any individual, group, or class -- whether it be capital, income, labour, social status, or other asset -- is neutralised as a political influence if representation and decision making can be made to guarantee general interests and disavow particular interests. 

The good rentier politician, like John Kerry, argues that representational organisations he or she is a member of require reform. Political institutions, if they are to keep pace with economic change, devise new protections against new-fangled money interests. It is important we recognise the absurdity of using blunt instruments of wealth destruction and wealth redistribution as solutions to problems of money politics, cronyism, and rent seeking.

In summary, whereas Piketty’s rentier is the ugly face of capitalism and the “enemy of democracy”, Weber (possibly Kerry too) recognised the enemy of democracy and capitalism in the system that incentivises rentiers and other self-interested groups to shrewdly pursue private gain at the expense of public gain. Business takes advantage. State employees take advantage. Welfare recipients take advantage. A plethora of special-interest lobbies take advantage. Log-rolling, cronyism, rent-seeking flourish. The general public suffers. The system weakens.

Wealth-given political detachment

Max Weber, although he was a rentier himself, objected to any artificial condition that allows conservative income streams of rentiers to crowd out the revolutionary income streams of entrepreneurs. Weber, undoubtedly the greatest of all sociologists, was one of the leading scholars of his day who defended capitalism and democracy. At the time of writing down his most important theories, he was, by our classification, a good rentier. A breakdown in 1898 from overwork and a variety of long-standing neuroses interrupted Weber’s scholarship for many years and made it impossible for him to keep up his teaching duties. He could complete his research and writing as a “private scholar” only because of a timely inheritance in 1908. While living off that inheritance until his death in 1920 Weber helped establish a political party and participated in preparing the Weimar Constitution. 

If I may be so bold, I will now suggest the coup de grâce against Monsieur Humpty-Piketty’s thesis of “Rentier, Enemy of Democracy” (title of a key section midway through Piketty's book). I begin by quoting David Beetham’s Max Weber and the Theory of Modern Politics:

“What Weber looked for in the politician was someone who stood at some distance from the struggle of economic interests, and was hence available for the pursuit of wider political goals. Historically, the typical figure with the necessary distance was the rentier, particularly the large rentier, whether he derived his income from land or industrial capital. He was removed from the everyday struggle for existence, and this set free his powers to concentrate on the wider political issues affecting state and Kultur. Not, Weber hastened to add, that he lived in a kind of social vacuum, free from economic interests; yet he was not bearer of specifically class interests, but stood at some distance from them. Whatever Weber’s disapproval of the rentier from an economic point of view, he clearly approved of the type in the political sphere, as providing a potential source of independent conviction, at least so long as his income was large enough to give him genuine security.”

Ever since the ancient city republics it was always the rentier who in practical terms had “dispensable” time and energy for thought unrelated to production, and also sufficient detachment from everyday conflicts of economic interest to be politically useful. 

The rural and urban rentier was often also the person most available for legal offices. As Weber points out elsewhere, in England during the renaissance the office of the justice of the peace was an unpaid position, but it was an unwritten obligation for the sons of gentleman to assume it when they completed their education. Over the years the office of justice of the peace required ever more work and time from incumbents, yet it became “a source of social honour, social status, and social power” and was sought after for those reasons. Furthermore, since the legal advocate learns how to “fight with the spoken word”, this helps qualify them for politics. It remains usual to this day in many countries for legally-trained individuals to enter politics.

In Weber’s opinion “the economic situation of the wealthy does not necessarily dictate the direction of their political activity, whereas it can provide support for independent political convictions”. He lamented the absence of the positive type of hereditary rentier politician or legal advocate in Germany and France. There was something distinctive about “the stratum of landed nobility of the kind that existed in England... a bearer of political tradition, training and moderation for which there is no substitute as far as national politics are concerned”. 

Of course, nobody in the 21st century -- least of all a Max Weber reincarnate -- would say that all politicians must be wealthy. Politics is open to all classes, to persons from any background and occupation, selected by the party according to the party criteria, and, subject to the rules, elected to a representative council of state, there acquiring knowledge, training in recruitment, competition and compromise, proving their competence and power instincts under public scrutiny, tested repeatedly through tough cross-examinations in committees and commissions, before finally qualifying for the highest offices. 

Where the political structures are good, the wealthy rentier benefits the political system.  A well-run parliament forces parties to compromise and neutralises the most undesirable motives. Ideally the entire process of modern representation is competitive in weeding out demagogues and dilettantes, and expelling crooks and predators. Classical sociology and political science can explain how selection, training, and decision-making in politics becomes compatible with capitalism. If political representation is operating as intended, and if institutional designers update the system regularly, the rentier cannot be the enemy of democracy.

Even Piketty has the good sense only to use the term ‘oligarch’ in relation to politicians in pre-capitalist proto democracies, such as in Russia or Ukraine. Advanced democracies already passed through the transitional oligarchic stage of representation in which leaders are elected or rotated but are still only agents under instruction from an unaccountable elite, lacking autonomy to make choices or pass judgement on behalf of citizens. In the primitive political systems the ‘capitalists’ really are ‘robbers’ tied completely to politics. 

Once caged and tamed, let them off the leash

There is one more noteworthy aspect of the environment in which the good politician rentier can flourish. Weber detected an important parallel or functional equivalence of spirit and motive force between the economic entrepreneur and the political entrepreneur. The “struggle for personal power, and the resulting personal responsibility, is the lifeblood of the politician as well as of the entrepreneur”, he said.

Yet there is no place for economic entrepreneurs in politics - “It is not, as the usual stupid moralising of the littérateurs would have it, due to any lack of willingness for self-sacrifice or worship of mammon”. The real reasons are twofold. The economic entrepreneur is too busy, chained to the unrelenting hard work of running the business. Secondly: 

“All strata directly involved as entrepreneurs in the struggle of economic interests lack inner availability, distance from the everyday conflicts of interest in the private economic sphere. The modern entrepreneur is an interested party who is too directly involved in this struggle to be politically useful.”

It is nonetheless worth remembering the similarities. The political entrepreneur like the economic entrepreneur is intelligent and pragmatic. Their environment is not dissimilar. Parliaments and parties have much in common with markets and businesses. In political parties there are interest groups practicing demagogy and deception. Parties seek finance and influence by any permitted means, and must run along economic lines. The internal structure is usually authoritarian and secretive. A hard core defines the program. Methods used to attain power or maintain solidarity can be ruthless. Parties are vote-getting machines and personal networks. Demagogues and cliques abound.

As in the market economy there is no place for the ‘guild instinct’ in parliament, since that would prevent the emergence of new people and new ideas. Conflict between parties is about policies rather than simply dividing up spheres of influence among organs of the state. Genuine representation is a voluntaristic competition of interests. The parties are voluntary organisations with a voluntary following. There are “rules of war on the electoral battlefield” as in the market. Competition is tempered by compromise.

It is no small irony that a conservative rentier who turns his back on the pursuit of revolutionary entrepreneurial income may instead discover and cultivate equivalent entrepreneurial spirit to very good effect, and for the greater good, in politics. 

Rich politicians, most of them bad

The modern political environment that I have contended is more of less guaranteed to derive some benefit from embracing the wealthy rentier is absent in most countries where economic and political entrepreneurship is forced not into the kind of politics that John Kerry by and large practices already, but rather into competition for tips and bribes linked to statist political rents and the monopolistic closure of business niches. Their common practice is not unlike the one depicted in the movies about early 20th century American political bosses. Thank the stars that practice has improved since then. 

The available lists of “richest politicians in the world”, which can be easily found using search engines, are not all based on reliable data. Nevertheless all of them include rentier politicians from China, Russia, and some of the most anti-capitalist, anti-humanitarian, and odious or dirt poor societies in the world. 

As The Economist magazine has shown, US politicians are nowadays paupers compared with lawmakers in China or rulers in the Middle East. Nevertheless, the USA stands out in the world as being the leading capitalist nation, the leading democratic nation, and a country in which more than 50% of politicians of both Houses are millionaires. Seven of the ten richest members of Congress are Democrats, three are Republicans. All this information is publicly available through sites such as www.opensecrets.org

There is a simple lesson. Politicians who are wealthy rentiers have done good, can do good, and could do even better if the reforms John Kerry called for get traction. Admittedly, I have conveniently ignored disagreements that would arise about the nature of those reforms. John Kerry might not support my ideas stemming from public choice analysis, economic sociology, and conservative/classical liberal economic theory about optimal rules-based constitutional measures which minimise political discretion in key areas of economic policy. These ideas were not the subject of today’s discussion.

I have emphasised two important claims, contra Piketty 

Democracy has nothing to fear from wealthy rentiers. Once the 21st century institutions have been tweaked here and there to set them to rights along classical lines -- with formal equality of treatment being a paramount consideration -- all the wealthy rentiers will be adequately encouraged to be highly productive (perhaps essential, but certainly not destructive) members of society and polity. 

The logic of bringing wealthy rentiers directly into politics was sound even in history when institutions were more primitive, as arguably they still were in Max Weber’s early 20th century continental Europe. Now, where conditions have considerably improved, there is even less reason to fear, and more reason to welcome, the effect of the wealthy good rentier who can bring entrepreneurial spirit to politics without all the baggage of economic interests. 

Michael G. Heller ©2014