Freedom of Conscience and Liberty

Writing the last post made me think a bit about the roots of economic and political freedom.  I tend to locate liberty a step further back, in freedom of conscience.  Ultimately, I feel that liberty is inherently about the individual's own struggle to discover for themselves what is right and moral, other forms of liberty and secondary to an individual's right to commune with their own soul.  To secure liberty, laws and social norms must be constructed to enhance this process of self discovery to the extent possible, allowing individuals to become dependent on others with no way to fulfill their obligations is the surest way to erode moral autonomy.

This requires that laws be rooted not in some kind of objective morality but rather that they are rooted in mutual recognition of both autonomy and dependency, with society seeking to regulate the interactions, whether conscious and direct or unintended and indirect, between individuals rather than trying to restrict us solely as individuals.  Dependency is our natural state, we are born with debt to those that brought us into the world and to the society that allows us to be something more than barely differentiated savages scratching for roots in the dirt.  Autonomy is the recognition of our individual self-worth that allows us to perform actions to pay back the infinite debt incurred by our existence, by working to benefit others we not only to enhance our own social position through wealth but help to construct the society that will raise others above savagery.  This reciprocity between society's role in lifting us up and our role in supporting society is what allows us to exist in a state of liberty, rather than bondage.

But I am brought back to what Mill said in his introduction to "On Liberty." 

By liberty, was meant protection against the tyranny of the political rulers... Their power was regarded as necessary, but also as highly dangerous; as a weapon which they would attempt to use against their subjects, no less than against external enemies.

What worries me, when I'm feeling pessimistic anyway, is that this conception of liberty regarding political rulers has been becoming more prominent in our culture rather than one regarding individual autonomy and individual social, moral, and economic evolution.  We seem increasingly willing to restore the local institutions that were previously the source of our spiritual bondage in order to weaken our obligations to the state that has rusted away these iron bonds.

What we have forgotten is also mentioned in Mill:

To prevent the weaker members of the community from being preyed on by innumerable vultures, it was needful that there should be an animal of prey stronger than the rest, commissioned to keep them down.

In Mill's day no individual was able to amass a long standing fortune or personal reputation and power significant enough to be more than a local actor.  Businesses were family run and often dependent on the local economy for their survival.  Individuals were curbed both by dependence on the international economy and on the opinions and needs of their local communities, rendering them harmless and a general boon to their society.  

The wings of these minor harpies have been clipped for so long that we have forgotten how dangerous and repressive these minor harpies were when in full flight, it is either too long ago or too distant from our experience to appreciate the dependency that results from these grossly unequal interactions.  Rather than seeking to simply curb the excesses of power of the king of the vultures our culture is tending in a direction that so thoroughly blinds and blunts the beak of this beast that these minor harpies are again stretching their wings to take flight.  It concerns  me that there won't be a reaction until it's too late and we'll find ourselves free of government but dependent on innumerable minor harpies and unable to make our own way in the world without tying ourselves to organizations and individuals that will give us far greater scrutiny than the state has ever chosen to do.

Social vs. Personal Evil

Surprisingly enough I thought a New York Times editorial on the movie "The Help" was really excellent.  It addresses the fact that the characters displaying racism and otherwise negative traits are almost always generally despicable people.  Rarely are these people portrayed as good people who also happen to have these traits.

This is a major problem with understanding these issues and is not limited to racism.  There is a big difference between social and individual evil.  We deal very well with individual evil, most things we consider individually evil are carried out with intent to cause harm and are easily categorized.

Social evil is very different.  All social evil has its roots in people's desire to do good.  Even concepts such as racism were grounded in people's deep beliefs in how to create a morally ordered society and the people engaging in these behaviors usually had the best of intentions.  This goes especially for the great 20th century evils, Hitler, Stalin, Mao, and Pol Pot all had ideas about what was best for their societies and lived in and created cultures that attempted to fulfill their moral vision.  Going back further in history, the Inquisition, witch burnings, and even the Mongol invasions require knowing that these were perceived by the actors involved as being measures to protect and benefit their societies (though in individual cases individual aggrandizement was certainly a factor but this aggrandizement could only be exercised because of a social and cultural consensus regarding the basic rightness of the act).

The evil of these things is rarely seen at the time by those that share the perpetrator's culture, in most cases, the belief in the rightness of these acts are widely shared.  It is only outsiders, whether those from another culture or future observers, that can properly judge the morality of social norms and customs.  We should be very, very sceptical of any claims of ability to change society on a social or moral level.  Thus far, all experiments of this type have ended badly, whether social engineering, massive economic restructuring, or conformity to rigid religious beliefs.

Thoughts and a Question on Taxes

I've been doing some reading on taxation as well as starting Hacker and Pierson's Winner Take All Politics.  This has been making me do a bit more thinking about the interaction of the distribution of taxation and economic growth.

The question I have is whether someone knows about a book or paper that looks at the incidence of taxation by income and its effects on economic growth?   Based on my historical reading, I tend towards the belief that economic growth is primarily the result of the actions of the top quartile of income distribution (the lower part of the distribution is important, but social and economic policies other than taxation are more important here). 

However, I don't see the top 1% contributing in the same way, historically the activities of the very top of the distribution seem to be more about distributing the pie than they are about creating growth.  For the individual, more gains can be had by acquiring new businesses (or land or other limited resources) than can be had by actually growing a business.  I see this as a tendency rather than a rule, some wealthy individuals will certainly act as angel investors or take on high risk projects, given the small sample size there is undoubtedly a great deal of individual variation.

The reasoning behind this is simple.  I don't buy Schumpeter's notion that entrepreneurs are motivated by the existence of the outsize gains of a Carnegie or Gates for their risk-taking.  Rather, I think they are more concerned with the outsize returns possible relative to being a simple employee, being a restaurant owner has a lot more potential for upside than being the restaurant's cook.  At the very highest levels I see this as breaking down, if someone is already very wealthy their potential downside is too big to be taking big risks on the outside chance of rivaling Carnegie and J.P. Morgan.  The real thirst for gain, and thus for entrepreneurship is among those a couple rungs below this.

Some other thoughts making me think along these lines is that studies that look at taxes and growth tend to have mixed results when looking only at Europe and some sensitivity to time periods chosen.  The strong taxes and growth link seems to be at least partially the result of the different economic and political structures of the anglo-saxon countries relative to the rest of Europe, Japan has very low taxes and low growth as well giving at least one case with experience contrary to that of the anglo-saxon nations.  Something that stands out among the anglo-saxon countries is that we also have a very high rate of entrepreneurship relative to Europe, perhaps this, as well as other factors also correlated to lower taxes, is a bigger part of the explanation than the factors normally studied by economists.

All this is leading me to wonder if the low tax advantage has to do with promoting the fortunes of particular parts of the income distribution and little to do with taxes overall.  The very low growth experienced by the US in the last decade and the tax cuts slanted towards the very upper end of the income distribution makes me think that this part of the distribution might not have much to do with growth.  In my story, growth would be the result of the assets and access to credit among the well off and not the wealthy who aspire to rise higher.  Taxing those who have already made it heavily would have little impact on growth, if this story is correct (at this point the speculation to data ratio is rather high).  I'd like to find a paper or book examining this question in greater detail and would appreciate if someone can point me in that direction.

Am I Not Understanding Something Here?

I find each Casey Mulligan post more baffling than the last.  Yesterday's post was on the failure of some studies praised by Krugman on stimulus spending that looked at cross-state variation.

He starts the post off by mentioning how moving Yankees stadium increased jobs in one area but decreased jobs in another.  So far so good.  He went on to say that sports stadiums displaces spending on other entertainment.  Fair enough, he doesn't claim displacement is 100% and I'd agree there is a lot.  I don't go to many sporting events, but even if I discover a really great restaurant (which is more my weakness) I probably only go out once or twice a year more because of it so I can buy displacement would be very high.

On the other hand, when I hear about a really great book I tend to go out and buy it over and above my normal book budget without checking my bank balance first, so here, displacement doesn't really exist (though my savings may be slightly less, but channeling this back towards demand is very, very indirect).

Back to where he's making sense, he points out that cross-state variation studies on the stimulus should take the national level into account.  Fair enough, but if we're talking aggregates G as a whole dropped due to decreases in state spending.  Since both state and government spending are very similar as a first approximation I'd expect the displacement effect to be very high (someone may have studied this, I'm just guessing).  So I don't know what would have to be looked at at the national level, it seems like state level comparisons might be far more appropriate here because we can get cases where net G increased at the state level, which did not happen at the national.  There may of course be some displacement between states but only to the extent where similar resources are being bid for, which may or may not be the case.

Of course, in some circumstances I would expect strong displacement effects from government spending.  A newly industrializing nation would probably see a strong displacement effect from both government and the private sector placing demands on cement, steel, and other construction goods.  If the employment rate were high, there would also be a large amount of displacement as wages get built up.  But the amount of displacement should be tightly linked to the similarity of the real goods being demanded and supplied, the more different they are, the lower the displacement should be.  Since the labor pool is differentiated, we shouldn't expect much competition at high levels of unemployment, the displacement would only occur when both are competing for workers that both find marginal and not particularly well suited for the need of either.

Looking back historically, I find a lot of evidence for demand driven rather than supply driven impacts.  One of my favorite books is Jan de Vries' The Industrious Revolution (bah links still won't work) which looked at the household economy and how households massively increased their labor supply as demand for goods such as sugar, tea, and coffee rose.  This drove both the supply of goods as well as changes in household structure that allowed for far more labor to be mobilized to obtain goods. There is far more friction today, few of us have many options to increase our individual labor supply for more goods, but the government has the ability to play a similar role by putting idle resources to work producing goods.  Assuming that government is not bidding for scarce resources, there should be little displacement effect.

Also, historically, if displacement were a significant drag on employment and growth we should expect states with small states to be the big ones today.  This isn't the case.  Great Britain had one of the largest states in the 18th century before the industrial revolution with a tax take of about 20% compared to 10 to 13% for France, 4 to 8% in China, and 4.5% falling to 2 to 3% late in the century, in the Ottoman Empire.  While distant from the main question, long run historical evidence doesn't fit the idea that state spending generally decreases growth and employment, even in the long run.  The opposite seems to be the case.

Of course, the idea that government spending displaces growth must come from somewhere.  I can assume that it does in fairly marginal and uncommon conditions, such as full employment or rapid industrialization where resources are near full utilization.  I also assume the displacement objection is using money as a stand in for real resources.  But this was never accurate, states can make money and when under pressure so do individuals.  During currency shortages in the Ming era, before the transfer of silver got under way from the west, parts of China reverted to cowrie shells as a means of exchange.  I am reading a book on Africa that mentions briefly how this happened in certain parts of Africa as well.  This is quite consistent with the Keynesian position, when demand for the means of exchange are high, resources become idled unless money is created.  Historically, even pre-modern societies realized this and responded, if very inefficiently (though the Song Chinese use of paper currency functioned quiet well at monetizing the economy for over a century and only fell apart due to military defeat and the loss of half their territory, I doubt the US dollar would hold value either if half the country was seized by foreign forces).

I'm not sure these digressions will convince anyone, but my point is there are multiple strands of evidence pointing to the importance of demand and how weak displacement effects are.  Size of government just isn't well correlated with growth over long run, historical time frames.  Displacement requires demand for similar resources, if government starts building roads as long as private industry isn't facing a shortage of steel and asphalt I see no reason for investment to be crowded out.  Money is an abstract representation of real resources and not a very accurate one, the US government printing money is equivalent to Chinese traders using cowrie shells to meet a shortage in copper cash.  If it gets otherwise idle resources working, there's no reason that displacement will occur.

Book Review: Do-Gooders: How Liberals Hurt Those They Claim To Help

[Updated with a new statistic for chapter 3, I had to check the raw data for comparable stats]
[ Updated 2nd time with information I happened to find interesting in the marriage report I checked for stats]
em·pir·i·cal

1: originating in or based on observation or experience
2: relying on experience or observation alone often without due regard for system and theory
3: capable of being verified or disproved by observation or experiment
4: of or relating to empiricism

So, what to say about a rather silly book Do-Gooders by Mona Charen (hmm, my Amazon Associates link function hasn't been working, this is annoying, not that I think anyone would want to buy this thing, but I like linking to the edition I read).  This is my first experience reading a book from the right wing rage machine (the left has one too, but they are more prone to documentaries). I don't think anyone is expecting much factual accuracy from this kind of work so I'll only go into things moderately. What does jump out at me though is this quote from the book, "Conservatives tend to underestimate the worth of their own principles-freedom, self0reliance, tough mindedness, empiricism- and seem to accept the idea that liberal values-compassion, soft-heartedness (soft-headedness?), and equality- are superior."  I can accept most of this as what I would expect from a political polemic, fair game for this genera.  This book displays all these qualities and attributes the qualities with liberals it claims to.  With one exception, there is nothing empirical about this book.  It quotes a lot of numbers but it does not seriously rely on observation, it makes a great deal out of system and theory rather than experience and observation, and it doesn't follow any kind of systematic method for collection or use of data.  The author jumps around between rates and absolute numbers with no regard for which is appropriate.  The author pays no attention to base rates, quoting statistics to prove her point without acknowledging underlying trends.  Most evidence presented is in the form or quotations and anecdotes, the fundamental attribution error (ascribing observations to human action rather than to situational factors) is rampant. 

Now, from this sort of book I wouldn't expect empirics, except empiricism is singled out as a primary virtue.  I'll go briefly through the book to point out the real howlers.


Chapter One - Judge Not
This chapter basically goes over the rise, and decline, of the crime rate in the US attributing crime primarily to liberals insistence on rehabilitation and light sentencing and the fall in crime rates to increased punishments.  The big issue this ignores is that both the rise, and later fall, in crime rates were coordinated across all developed nations, none of which had the same tough on crime approach the US used.  While US crime rates were worse in many aspects before the sharp rise, they remain so in many aspects.  There are some anecdotes of particularly stupid things liberals said, but if I desired to do so, I'm sure I could find similar anecdotes from conservatives.  This proves nothing.  Crime is not an area of specialty for me and is overall not completely understood, so I've got little more to say.  But if base rates and widely ignored correlations are not taken into account to provide an explanation, empirical methods are not being used.  The main problem in this chapter is spurious correlation and the fundamental attribution error, base rates are ignored, causality is attributed because two things are happening roughly at the same time but precise dates are not established meaning that the comparison is meaningless, and all the incendiary rhetoric and quotes amounts to no more than meaningless anecdotes.


Chapter 2 Stoking Fear and Hatred in the Name of Racial Sensitivity


This chapter is mainly polemic quotes, I don't really have anything to say about this.  With one exception, the author states that "about 180,000 ballots in Florida were not counted due to voter error: either undervoting, or overvoting.  It is impossible to know how many of the "spoiled" ballots were cast by African Americans since we have a secret ballot."


Anyone that knows empirical methods will know this is bullshit.  We do not have to know the provenance of individual ballots cast to establish how many ballots were cast by African Americans (within a certain degree of statistical error).  If we know the demographics of given counties and if we know other relevant characteristics of the voting districts in question, and we know the participation rates for the districts, then we can use statistical methods to answer this.  It will take a lot of slogging through boring data for graduate assistants but this is well within the realm of the possible (assuming data is collected for the relevant counties, not being very interested in electoral politics I don't know 100% that this data exists, but I believe it does).  If more votes are being rejected consistently in African American counties than can be explained by other factors than it is possible to establish causality.  I don't know if this is the case, but anyone that understands statistics will know that the secret ballot should have no impact on establishing the veracity of this claim.


Chapter 3 The Promise of Compassion


This is basically a long chapter on the culture of dependency argument.  Here I'm going to break out some statistics, since I have them.  A lot of ink is spilled over rising illegitimacy rates, illegitimacy increased among all groups in society not just the poor or ethnic groups.  These rates varied with no relation to changes in welfare benefits.  There is no causal relation between welfare and illegitimacy (welfare did allow more women to keep their children despite being single, however, simply giving them up for adoption is no sure way to have them adopted so this is a naive suggestion).  There are legitimate concerns regarding the decline in marriage rates and the effect this has in children, but the dates and distribution of the problem isn't right for a welfare based explanation.


There are base rate problems, she claims between 1963 and 1973 welfare caseloads increased 230%.  Population increased, the economy was substantially worse in the 1970s, and family structure and demographics have both changed.  The raw number means nothing without associating it with other changes.  Poverty also declined remarkably during this period and labor force participation also rose.  What does the increased caseload have to do with anything?

She talks a bit about welfare reform.  The main takeaway here is that work incentives were a good thing but the actual fear of liberals largely came to pass.  There is evidence that the most poor and detached women that had been long term welfare recipients simply dropped off the rolls and did not start working, this pool has likely increased.  The poverty gap (basically how much income is below the poverty line) among the most deprived groups has increased.  On the other hand, employment has increased and welfare rolls decreased dramatically and spending declined from $24 billion in 1988 to $13 billion in 1999.  But what isn't mentioned is the massive increase in work supports that accompanied welfare reform,  spending rose from $11 billion in 1988 to $66.7 billion in 1999 and non-cash work supports increased from $9.5 billion in 1993 to $18 billion in 1999.  Claims about jobs are also misleading, once the expansion was over unemployment rose and labor force participation fell, the lack of rise in welfare rolls had less to do with lack of need than it had to do with new restrictions.  There is evidence that women use welfare more strategically, in the low wage sector of the economy jobs tend to be unstable so women delay going on welfare, despite lack of income, until joblessness is prolonged.  They want to save their 60 months for when the really need it.  This does not indicate reduction in need but that women value security over present income, they want welfare as insurance and are willing to undergo deprivation to retain a safety net.


Perhaps the best example of deceptive, and non-empirical use of statistical data is when she notes that the percentage of African American children raised by married parents increased from 34.8% in 1996 to 38.9% in 2001.  What's notable about this is the implication that the percentage was rising before welfare reform and declined after.  I couldn't find exactly comparable statistics, but the birth rate among unmarried women was already falling before 1996.  According to "Nonmarital Childbearing in the United States 1940-1999, National Vital Statistics Reports, the birth rate among unmarried women had begun to fall in 1994 (and probably even earlier due to changes in reporting data in the early 1990s resulting in an overstatement of births to unmarried parents in the first few years of the decade relative to the rest).  While this is change is a good thing, it is unlikely to have anything to do with welfare reform, unless a very high degree of political information and sophistication is assumed for unmarried poor women (also the number of people on welfare isn't large enough for it to be likely that welfare policy changes would be significant in national level statistics).*



Chapter 4 Rewarding the Worst Families


There are tons of problems with the foster care and adoption systems.  It would be nice if there were enough wiling parents to adopt all the children being cared for by bad parents.  The author does nothing to establish that her alternative is realistic.  Trying to offer services to dysfunctional families is an attempt to make the best of a bad situation.  Blaming liberals for this is just absurd.  Not much more to say about this.


Chapter 5 The "Grate" Society


Yep, homelessness is bad.  No, blaming this on deinstitutionalization is not really accurate.  It is true that we let people out of institutions without putting adequate systems in place.  But institutions were very destructive to the individuals involved and extremely costly.  This chapter is mostly anecdotes and doesn't really present real alternatives.  Yes this is a problem, but some empirical evidence rather than anecdotes would have helped.  But, of course, "there has never been a more humane country in the whole history of humanity," so I guess the problems with both the earlier and current system are OK then.


Chapter 6 The Liberal War on Rigor and Patriotism in America's Classrooms


Yeah, I like standardized testing to.  Other than that, this chapter is silly.


*Incidentally, reading this report was somewhat eye opening on numbers.  I realized that some of what I had understood about welfare and teen pregnancy came from reports written in the 1980s.  There is a high degree of cyclicality in these numbers and rates rose significantly in the 1980s, meaning that some of what I though was true based on these papers may not be (then again, those writing these reports may have had better data sets, the start of the series in 1940 is likely a trough without data going further back it's hard to say what a base rate would be).  This couldn't be due to welfare since the 80s weren't great years for welfare increases but it does indicate rates were somewhat higher than I believed relative to early periods (rates also fell in the 60s and part of the 70s before rising again, total % of births decreased because births to married mothers declined more sharply, what this indicates is that planned pregnancies fell while unplanned remained stable or increased).  Of course, 1940 is very likely to have had an unusually low rate of births of all kinds, given the war going on and the lingering effects of the depression.  I'd like to have numbers going back to 1900 for better comparability.


[Update: This was interesting, pregnancy rates feel sharply among non-white women between 1990 and 1995 from 175 per 1000 to 152 in 1995 (women 18 - 44). Among all women, the decline was from 102 to 96.  The abortion rate also fell sharply between 1980 and 1995.  I have no real theoretical observations from any of this, other than I hadn't realized the high cyclicality of birth rates.  Very interesting, and certainly something that doesn't seem to match with welfare state policies.  Marriage rates also increased among women who conceived first child before marriage in 1990-1994 relative to 1980-84.  Seriously contradicts the view about welfare reform having something to do with marriage, this seems to be varying independently.

Texas and the Fallacy of Composition

As the debate over Texas heats up I become increasingly unconvinced that Texas shows a way forward for the US.  Douthat's column this morning finally inspired me to comment on it.

First of all, the composition of the employment picture shows a great deal of job growth is due to the simple effects of growth, such as government and health care.  Resisting sharp cuts to government, which is very unlike the picture in most other states, definitely helped this situation.  Oil and gas played a role in bringing in high wage jobs more high paid jobs, more supporting jobs in other sectors.  Then there is the migration picture, which seems to be driven in large part by a reputation as a job creator, which, in times like these, becomes a self-fulfilling prophecy as more people move in bringing skills and talents with them.   Avoiding the housing bust also prevented a downward spiral from developing.

So far, the picture is basically a virtuous circle of what most left leaning Keynesians say we should have been doing.  Not cutting government, supporting high wage sectors (in the case of Texas intervention wasn't required, but many states with abundant natural resources have enjoyed this prop, though they lack some of Texas' other characteristics),  and encouraging migration all help to create a positive spiral, resisting the housing bust prevented the spiral from being broken.

Of course, this positive spiral was reinforced by Texas' low cost.  But there is no reason to think the advantages of being low cost are relative to an absolute scale, rather the advantage comes form being low cost to other options.  During a downturn the comparative advantage for being low cost will be a multiple of its normal effect, if everyone is holding onto cash then cost weighs much heavier than normal.  Investors are favoring reducing downside risk over potential upside.  So Texas is strongly favored right now relative to the US.

But this is already true of the US as a whole.  We have the third lowest taxes as percent of GDP in the OECD, behind Mexico and Chile.  Compared to developed countries, the factors under the Federal government's control are already slanted towards low cost.  This relative advantage is already doing what it can do for us, factors to increase this effect, such as looser zoning requirements to lower housing costs, are under state or municipal control, not the Federal government.  In any case, even if we did try to cut, there are no competitors in close competition that we could develop a relationship comparable to Texas vs. California with.  Either that relationship already exists, in the form of say US vs. Germany, or the relative costs are so much lower that we can't compete on cost without sacrificing our standard of living (as expressed as per capita GDP).  Do we really want to reform the entire US economy to compete on costs with China, whose per capita GDP is below our poverty rate?

On the whole, I feel that trying to use the success of Texas as a model for the US is an instance of the fallacy of competition.  It works for Texas, I'm not disputing the large number of jobs there or that it is to a significant extent the result of Texas' policies, but that something works within a given system doesn't mean that it will work for Texas as a whole.  If an investor decides they want to invest in the US given current conditions a premium will be placed on low costs relative to other factors, this favors Texas.  If a business wants to keep costs low, land and labor costs favor Texas, in other times other factors may be more important but not right now.  But this doesn't mean the US as a whole can drum up business and jobs by lowering costs, there simply isn't anyone we can undercut.  Texas has hit upon exactly the right strategy for growth and job creation within the US economy, this does not mean that the same strategy will work for the US as a whole within the world economy, which has a different set of actors and conditions and requires a different strategy.

Some Thoughts on Capital:Part 1

As readers of this blog know, I have some real problems with what I consider simplistic thinking in economics.  I am currently on an anti-market-fundamentalism kick, partially inspired by my recent reading of Schumpeter as well as some poverty reading I've been doing.

A New York Times article this morning looking at how companies are spending made me think of some of the issues related to this, so I thought I'd do some thinking out loud on this blog on this subject (which is what about 75% of the posts on this blog amount to).  The primary issue here I think, is that many economists seem to look at factors such as investment and capital without paying much attention to who has the money.

However, I think who has the money matters a very, very great deal.  Culture matters, and elite culture tends to be different from the culture of other sectors of society.  Also, the amount of assets possessed tends to alter incentives, this lead to different outcomes involving innovation.  I think the concentration of wealth may be behind some of the lack of innovation that Cowen is writing about in another article in today's NY Times. 

This is an observation with a long historical presence.  To quote Jan De Vries' in The Economy of Europe in an Age of Crisis, "the true industrialists were still... among the humblest and least wealthy bourgeois."  (de Vries The Economy of Europe in an Age of Crisis, 1600 - 1750. 235)  While many industrialists today are of course among the very wealthiest individuals, I'm suggesting a more general application of this idea.  To paraphrase Schumpeter (oh, how I wish dead tree books were searchable) capitalism is an evolutionary process characterized by creative destruction.  To foster this, I think it matters very much who has the money. 

The truly wealth elite tends to become socialized into a set of habits and ideas that lead to them having a greater sensitivity to economic stability and current ways of doing business that tends to erode the evolutionary change of creative destruction.  They become hyper-sensitive to small changes in regulation that wouldn't phase their entrepreneurial peers of less pecuniary fortune (who don't have large existing capital stocks to be threatened, those without large assets are motivated by the possibility of change, those with large assets are primarily motivated by the potential downside of any changes, listening to those with a lot too lose hardly gives a balanced perspective on the net benefit of change to society) and are far more sensitive to opportunities to create wealth through more conservative means, such as land investment, acquisition, and mergers than they are through creating a new, disruptive business that may have a negative impact on their existing economic holdings. 

When wealth is highly concentrated, the wealthy have the means to forestall the upsetting of the stable existing economic system by acquiring new challengers and integrating them into the existing social structures and leading former disruptive elements to assimilate to the social norms and ideas that are necessary to maintain social prestige and station among these individuals.  The individual that chooses to thumb their nose at these conventions is a relative rarity, though often remarkable for their success relative to their peers (once they reach this live, non-conformity without assets is often a road to poverty, not prosperity, adaptive behavior is situational, not a constant, and tied to an individual's other personal qualities).  More often, individuals find themselves better off by acclimating to existing norms and selling their new businesses to those in the existing upper social strata to buy their own membership at this level as well as to begin to play the game of maximizing returns through investment in existing economic assets rather than the creation of new, disruptive, and innovative ideas.  The social forces trump the economic factors, as always in human society.

[To be continued...]