The Bear’s Lair: How to Produce Trillionaires

Bernard Arnault, Chairman and CEO of Louis Vuitton is currently the world’s richest man, worth around $239 billion; he is notable in coming neither from the United States nor from the tech sector. His wealth is a product of globalization, which has produced demand for Western fashion brands among a substantial fraction of 8 billion people. Globalization is just one of the forces artificially inflating the wealth of the richest at the expense of the rest of us; I will herein examine the history of extreme wealth and the factors inflating it and forecast the conditions that will produce the world’s first trillionaires.

Contrary to leftist popular myth, the Industrial Revolution did not produce extremes of wealth. Thomas Newcomen, its instigator by inventing the steam engine in 1712, remained a provincial ironmonger throughout his life. Josiah Wedgwood, the potter and inventor of modern marketing, achieved worldwide sales but a net worth at his death of only around £500,000 – around $220 million with an m in today’s money if you convert by the gold value, my preferred way of making that conversion. Sir Richard Arkwright, the first successful textile entrepreneur, got a knighthood for his pains, but his net worth at death in 1792 was around £600,000. Granville Leveson-Gower, 2nd Earl Gower, was a landed magnate who expanded his wealth substantially through successful industrial investment but was still worth only £2 million at his death in 1803 – not quite qualifying as a dollar billionaire in today’s money.

Half a century later, the following generation were richer, but only moderately so. Richard Arkwright, son of Sir Richard, was the richest commoner in Britain when he died in 1843 worth £3.5 million ($1.5 billion in today’s money) – probably only Gower’s grandson the 2nd Duke of Sutherland was richer, through inheritance and removing the inhabitants from the Highlands of Scotland. In the United States, John Jacob Astor, the country’s richest man, died in 1848 worth $20 million – about £4.1 million 1848 pounds or $1.9 billion 2023 dollars.

Then, without significant inflation – if anything, prices declined between 1840 and 1880 – the size of fortunes in the United States but not in Britain or elsewhere took a leap upwards. Cornelius Vanderbilt died in 1877 worth $100 million; his son William Howard Vanderbilt died in 1885, only eight years later, worth $200 million. ($9.5 billion and $19 billion in 2023 values). Then around 1900 the first dollar billionaire appeared: John D. Rockefeller, with Henry Ford following around 1914 (both worth around $95 billion in today’s dollars).

No fortunes of that size appeared outside the United States, showing that the increase in scale of the top U.S. fortunes had either policy or economic causes peculiar to that country. U.S. economic policy changed in one notable respect with the Civil War; it became markedly more protectionist. The average U.S. tariff rate in the late 1850s was around 15%, after the balanced tariff implemented by President James Buchanan in 1857. Then, with the Morrill Tariff of 1862, the average U.S. tariff rate on imports jumped to over 30% and remained around that level until World War I – the average tariff rate on dutiable imports during that period was over 50%.

This had two effects. Domestically, it raised the profit margins for domestic manufacturers to unheard-of levels – foreign steel, for example was completely unable to compete in the U.S. market, so that U.S. producers, notably Andrew Carnegie could charge high prices and expand production scale, thereby further reducing costs per ton, making their output far more competitive than British steel in third markets or indeed in the British Empire, where the unilateral free trade policy continued. Normally, this would have been very good news for U.S. workers, as their wages would have been driven up commensurately, as in the protectionist pre-1846 British economy. However, the U.S. followed a policy of unlimited immigration during these years, peaking at 8.8 million in the decade 1900-10, which had the effect of suppressing wage rates for factory labor.

This combined policy vastly increased the profits of industrial corporations and ensured that labor costs would be kept low, allowing the bulk of the profits to flow to the “robber barons” who controlled the corporations. Only after 1910 were immigration restrictions imposed and the flow began to decline, so it is not surprising that the first major advance for unskilled workers, Henry Ford’s “Five Dollar Day” was implemented in 1914. Moreover, before we cheer for William McKinley and his pro-billionaire policies, we should note that the surge in global protectionism after 1870, reducing the size and lobbying power of companies operating across industrialized-country borders, can be given significant blame for the advent of World War I, caused as it was largely by lack of communication between the elites of the countries concerned.

With immigration sharply restricted after 1917, particularly by the 1924 Immigration Act, the next half century was a Nirvana for U.S. workers, with real wages increasing sharply despite inflation, interrupted only by the abominable economic policies of 1930-38. However, those years were much less good for the super-rich, partly because the U.S. reverted to a free trade policy after World War II, while top rates of income tax were close to confiscatory levels until the 1964 Act. Thus, the richest American in the late 1950s, a period of roaring prosperity and a booming stock market, J. Paul Getty, was no richer in money terms than had been Rockefeller in 1900; given the intervening inflation, his real wealth was one fifth of Rockefeller’s.

Help for the billionaires was not far away. The Immigration Act of 1965 once again produced an increasing flood of immigrants; in addition, women entered the workforce in greater numbers. As a result, blue collar living standards peaked around 1973, and the persistent inflation thereafter caused real wages to be eroded. These policies combined with the 1980s tax cuts to cause the number of U.S. billionaires to explode from the 1980s onwards.

Since the 1990s, two other policies have combined to produce more billionaires. One is the quarter-century of distorted GOSPLAN-type zero-interest-rate monetary policies, which have inordinately raised the value of all types of assets (of which billionaires typically have an inordinate amount) as well as incentivizing leverage by allowing the super-rich to borrow at negative real interest rates. The effect of this has been artificial and pernicious, but hopefully temporary, if the world’s central banks can be persuaded not to repeat their egregious errors.

A subtler inflater of super-rich fortunes has been globalization. This has not been a conscious policy but a technological change; around 1996, with the Internet and modern telecoms technology it became much easier to outsource production of goods for Western markets to Third World countries with very low labor costs, notably China. This has caused living standards to converge between the West and the Third World, which would not have mattered if the West had been competently economically managed, since productivity growth would have been sufficient for Western living standards to rise in absolute terms. However, given the management we have actually had, Western living standards have declined and manufacturing has been excessively “outsourced” to China and other cheap-labor countries, making supply chains vulnerable to disruption.

With low-wage countries’ incomes increasing rapidly, globalization has produced a gigantic new class of consumers, attracted by brands already developed in the West, and without established high-end local brands to compete. Consequently, top-end products such as the Apple and Louis Vuitton ranges have enjoyed an artificial explosion of global demand that has greatly enriched their shareholders and elevated the richest of those shareholders to the top of the billionaire list.

Trillionaires will appear if the policies of the last decade are extended for another decade. Inflation will continue substantial, devaluing the unit in which wealth is measured – a billion dollars today is not what it was in Rockefeller’s time, and U.S. GDP as a whole exceeded $1 trillion for the first time only in 1970. Globalization will continue to enrich owners of global brands, although that effect may lessen as protectionism leads poorer countries to develop their own status symbols, becoming less reliant on Western ideas of luxury. Protectionism in the tech sector may well raise the profits of U.S. tech companies yet further, as they are liberated from pesky Chinese competition. High legal and illegal immigration will suppress Western wage levels further, unduly enriching their employers. Artificial Intelligence will enrich inordinately the wealth of those humans who control what will inevitably become an oligopoly. Finally, a resumption of 2010-22 cheap money policies will both cause inflation to accelerate and artificially inflate asset values further, making the race to the first trillionaire a swift one.

As for the rest of us, we are likely to suffer further as policies are set in the interests of potential trillionaires, while job opportunities for ordinary people diminish. Some of our coming misery is inevitable, but Donald Trump’s emphasis on restricting immigration sharply (but not his absurd real-estate tycoon’s delight in “funny money”) could push us at least some way towards the blissful Nirvana that our predecessors enjoyed between the 1924 and 1965 Immigration Acts.


(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)