The Mandarins and Capitalists

America has two kinds of elites

Rob Henderson recently wrote a piece titled The Grand Canyon-Sized Chasm Between Elites and Ordinary Americans. He discusses a number of ways in which the worldviews of “elites” differ from ordinary people. In one study Henderson references, “elites are defined as individuals with postgraduate degrees who earn more than $150,000 a year and live in metropolitan areas.” Another study characterizes elites as those holding the top positions in various fields including politics, finance, academia, and media. Elsewhere he associates having an Ivy League degree with elite status. Reading through this I note that Henderson was talking exclusively about a subgroup of elites that I call the Mandarins or Blue elites. Totally missing were the Red elites.

Henderson notes than under the first definition given above, he would a member of the elite, as am I. And indeed, he is an elite of this sort, except he is a Red elite because he grew up in a hard knocks environment, joined the Air Force at age 17, and had probably formed his (Red) politico-cultural worldview by the time he finished his service. He earned an Ivy league diploma and so acquired a symbolic prestige marker making him elite by one measure. He later acquired a post-graduate degree and an upper middle-class income that made him elite in a second way, but he doesn’t see himself as an elite because he is not a Mandarin.

To understand what I mean by Red elites and Mandarins see this piece where I proposed a two-dimensional political spectrum with an economic left-right horizontal axis and a Red-Blue cultural spectrum on the vertical axis. I argue the Red-Blue divide goes back to the beginning of the republic. Originally there were Red and Blue American political cultures whose strongholds were the South and Northeast, respectively. There were Red elites (plantation owners) who were Democrats and Jeffersonian Democratic-Republicans, and the Blue elites, who were Capitalists (owners or managers of commercial, financial and industrial businesses). Politically, they were the Federalist, Whig, and Republican opposition.

As the 1780-1870 secular cycle proceeded, elite proliferation produced competition, which developed into political conflict, culminating in civil war in 1861. The Red side was defeated, their elites lost the greater part of their wealth (slaves) and ceased to play a significant role at the national level. The Capitalists (Blue elites) were now the sole American elite and functioned as plutocrats. The Democrats did not disappear. The old Red elite continued to dominate politics at the state level giving Democrats a base of support known as the “solid South.” Northern Democrats expanded their party by appealing to working class immigrant populations on the basis of ethnic identity and patronage through urban political “machines.” Their leaders were a mix of Red and Blue, economically conservative and liberal, political operators, making common cause against Republicans. During the 1860-1932 period of Republican ascendancy, they had two presidents, Cleveland, a Northern (Blue) economic conservative and Wilson, a Red economic progressive. The 1890’s Populists were also Red progressives, who merged with Democrats for the 1896 election and diminished afterward. Their ideological descendants are the MAGA Republicans who still retain a vestige of their old economic progressivism through their opposition to free trade.

The 1870-1940 secular cycle played out differently because there was only one category of elite, the Capitalists. Democratic leaders simply did not play at the same level as the Capitalists, the greatest of whom controlled productive capacities larger than those of some of the Great Powers. Because there were not two powerful opposing elite factions, elite proliferation led to political polarization, but not beyond that to political conflict. Conflict was expressed more in business than in politics, and was intensified by the appearance of the capitalist crisis caused by high income inequality:

The key problem of this crisis was a shortage of demand relative to the productive forces now present in the burgeoning industrial economy. Elite responses included such things as the rise of marketing to direct sales to one’s own company, introduction of consumer finance to support increased demand by potential customers lacking ready cash, and efforts to increase profit margins by suppressing the share of output that went to labor. A novel response is illustrated by Ford’s effort to introduce productivity-enhancing, but mind-numbing, automation to his automobile manufacturing process in order to slash costs, allowing price reductions to increase sales while maintaining margins. Ford encountered huge worker turnover problems due to the onerous working conditions the new tech created. He came up with a counter-intuitive idea: reduce labor cost by doubling workers’ pay. The idea was that the savings in turnover costs would more than make up for the increased labor cost. His ploy was successful, sales tripled over six years. In his 1926 book, Ford noted “the owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.”

Social scientist Kitty Calavita describes the role of the state in a capitalist nation as the “manager of the collective interests of the bourgeoisie.” From the state’s perspective, the advertising and consumer finance responses amounted to rearranging the deck chairs on the Titanic. These approaches could solve the problem for some, but the core problem was capitalists collectively needed a bigger market to exploit. Squeezing worker incomes to increase margins made the problem worse by depressing consumer demand, even though it could benefit the individual companies pursuing it. On the other hand, Ford’s “proto-stimulus” created new demand outright, growing the collective pie (and making out handsomely to boot). It would be the conceptualization advanced by Ford that would be adopted by others.

A fuller account of this is given in chapter 2 of America in Crisis. There I note that the Capitalists over the 1920’s were developing a more cooperative approach towards the problems of the crisis, as indicated by a decline in polarization after 1920, a willingness try cooperative approaches to the crisis of the developing Depression in late 1929, and finally, to raise taxes on themselves to 63% in 1932, in order to prevent future inflation from the large deficits arising from the Depression. In that same year, Red America’s party (Democrats) won a landslide victory and put into a place an economic program that gradually decimated the fortunes of (mostly Republican) Capitalists and greatly benefited working people. The program was successful (Democrats won 7 of 9 presidential elections beginning in 1932) and immense, producing a six-fold rise in the size of the government. Expanded government operations and the industries this expansion helped grow (e.g. the military industrial complex) resulted in the rise of a new category of credentialed elites to operate it. These were the Mandarins, mostly educated middle- and upper-class folks who tended to be culturally Blue and vote Republican. James Burnham’s Managerial Elites seem to be a similar thing. They eventually went Democratic in the sixties and seventies as described here. These are the people Henderson is talking about.

The Capitalists had suffered a setback in 1932, but unlike the Plantation elites, they were necessarily left intact as they largely ran the nation’s economy. Efforts at recovery of their former station began right after the war. Republicans won control of Congress in 1946 seeking to roll back the New Deal. Voters rejected Republican efforts at restoring the fortunes of the Capitalists, returning control of the government to the Democrats in 1948. The Mont Pelerin Society was founded in 1947 to lay the neoliberal intellectual foundations for a future Capitalist restoration. Like critical race theory in the 1980’s through 2000’s, which had to wait until the current CPP (2012-26) to break out, so did neoliberalism have to wait for the next CPP (1963-77) to advance. Taking advantage of the 1970’s economic troubles, neoliberalism came to power with the Reagan landslides in 1980 and 1984 and the restoration of Capitalists was underway.

The Capitalist party was still the Republicans, who in the wake of Civil Rights picked up the Red cultural banner, making the Capitalists the Red elite, even if many of them might personally identify as Blue, restoration of their wealth and power was what mattered. Since the Reagan years, neoliberalism has spread into the Democratic party and economic liberalism is moribund. Rather, there is an economic center-right, socially progressive Democratic party associated with Blue America and the Mandarins, and a plutocratic, socially conservative Republican party associated with Red America and the Capitalists.

During the current secular cycle, we have seen polarization arising between the Mandarin and Capitalist elite factions and their respective political parties as happened during the antebellum cycle. And there has been discussion of civil war now as happened then.  But we are also in a capitalist crisis that began in 2006. These things can end with financial crisis when peaks in financial instability (FSI) and political instability (PSI) coincide. Last cycle the capitalist crisis contained two crises, the Panic of 1907 and the Great Crash in 1929. This time we have had the 2008 Panic, and if panic frequency is still the same as it was in the pre-1933 era, we might expect a second crisis later this decade. For a more complete account of these dynamics the reader is directed to chapter four of America in Crisis.

Where Burnham was wrong is there isn’t a single elite. There was during the second secular cycle, and having grown up in that time and working from a Marxian initial position, Burnham quite rationally thought that the Capitalists, who had been laid low by the New Deal, would be replaced by his Managerial elite (the managers of the post-New Deal government and business). But that is not what happened. The Capitalists did not go gently into that good night. The elite status of Planation owners (the original Red elites) was obligately dependent on slavery, so when that ended, so did they. But the elite status of Capitalists is based on capitalism, a fundamental social scaleup technology, which is naturally renewed with each Kondratieff wave when a new leading sector arises. Capitalism can no more be eliminated than can the State, or Religion.

So, when Democratic hubris collapsed the House that FDR built in 1973, the agents of the Capitalists in the Republican party were ready to take advantage with their supply side theology, embrace of the Religious Right, and what is sometimes called the Southern strategy (see chapter 5 of America in Crisis for a more extensive account). They succeeded when Reagan won in 1980, beginning the Neoliberal Order.

Henderson notes that “Power itself seems to obey a power law, accruing into the hands of fewer and fewer people…and the people who have lots of power will want to exert it, usually with the best of intentions. He cites the conclusions of a conservative analysis of the divide between Mandarins and non-elites: “given the influence they yield, the overall views of the Elites (i.e. Mandarins) represent an existential threat to America’s founding ideals of freedom, equality, and self-governance.” Mandarins, as elites, do wield power and do hold views different from common folk.

But so do the Capitalists. The very rich often exhibit Dark Triad traits. And with the Democratic move to the economic right and its embrace of empire (once the province of Republicans) Republicans political objectives have shriveled. Rather than managing the collective affairs of the Capitalists, it now seeks to manage of a single man. Donald Trump who sees himself as uniquely capable and that only he should rule, has sought to reshape the Republican party into an instrument of his will. Instead of the Capitalist party managing the collective affairs of the Capitalists, it will now manage the affairs of a single man.

Figure 1. Trends in top 1% income share during various periods

Unlike the Mandarins who are quite upfront with their views, the Capitalists (except for Trump) know their beliefs are alien and do not advertise them. Their chief economic policies such as cuts in the top tax rates on ordinary, investment and corporate income and legalizing stock buybacks explicitly help the 1% (see Figure 1). After forty years of the Neoliberal Order they have managed to return to the pre-New Deal world, panics included. This transition has serious adverse effects, As I have discussed in many places, it saw the rise of SP culture, financialization, slower growth, and lack of working-class wage growth, resulting in a variety of negative social trends. Financialization led to soaring stock market valuations and the creation of numerous billionaires who owe their status more to the new market paradigm than to their sometimes-questionable brilliance.

But these changes can be blamed on things other than deliberate policy, because the policy effects are subtle, happening in the background. It is only when a figure like Trump appears who advertises the extreme nature of the Capitalist vision for America. Because of his over-the-top persona and sometimes bizarre utterances, observers like Henderson see Trump as an anomaly, rather than the fulfillment of the Capitalist program.