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In This House We Prey

Managing family wealth for dynastic power

Indicted on insider trading charges and barred from investing other people’s money, erstwhile hedge fund manager Bill Hwang turned to investing his own. In 2013, he established a private firm, Archegos Capital Management, with the $500 million or so he had left after paying over $60 million in fines and disgorgements. Hwang, who, in his own words, invests “according to the Word of God and by the power of the Holy Spirit,” hoped to continue “God’s work” of helping companies “establish an appropriate market price.”

Hwang quickly leveraged himself to the hilt by simultaneously borrowing from multiple investment banks and purchasing large derivative stakes in public companies. When share prices fell in early 2021, each of these banks individually called in their loans, apparently unaware that Hwang had obligations to multiple other brokers. Archegos had no choice but to default on its margin calls, leaving six banks with a total of $10 billion in losses and tumbling stock prices. Credit Suisse alone reported a $5.5 billion hit—equivalent to five years of pre-tax profits in its investment banking division. One reason why Hwang’s risk-taking was invisible to both regulators and brokers was because Archegos operated as a “family office”—a vehicle wealthy families use to manage, protect, and pass on their asset holdings. As such, it was covered by special privacy protections that were reaffirmed by the Dodd-Frank Act of 2010.

With Archegos’s thunderous collapse, this once-secretive method of dynastic wealth management came crashing into public view. It has become de rigueur for the very rich—of new and old extraction—to channel their personal and family assets into a family office, thanks to the stupendous inflation in asset prices induced by the Federal Reserve’s unconventional monetary policy following the global financial crisis of 2008. As wealthy households watched the value of their assets soar into the billions, they found they could rely exclusively on their newly inflated family fortunes to stake out independent positions in the private investment market. They have since become a disruptive force on Wall Street, pursuing deals that were once reserved for private equity firms and hedge funds.

Fearful of losing their regulatory privileges in the wake of the Archegos debacle, family office associations rushed to erect a cordon sanitaire between themselves and Hwang. As congressional reformers held up Archegos as a cautionary tale of well-heeled hubris, insider lobbying groups disavowed all affinity with their prodigal brother. Archegos, they claimed, was a hedge fund in disguise; and Hwang was just one of many hedge fund managers who had converted to family office form as a matter of regulatory expediency in the wake of Dodd-Frank. Traditional family offices, it was implied, were inherently conservative investors who would never have countenanced the kind of high-risk swap deals undertaken by Hwang.While each of these claims were plausible, none of them were mutually exclusive.

Many of America’s newly minted billionaires come from the world of alternative asset management, so it is hardly surprising that in looking to manage their wealth, they would deploy the same cutthroat methods they had honed as hedge fund managers or private equity partners. Hwang’s history of fraud may be a red herring here, as it distracts from the more significant fact that alternative asset managers as a class are turning into dynasts before our eyes. It is not only regulatory expediency that has led the most successful private equity and hedge fund managers to set up family offices but the fact that so many of them now dispose of fortunes liable to long outlast them.

The lesson to be drawn from the Archegos drama, then, is not that the genuine family offices are to be separated from the pretenders, but that dynastic wealth holders have become a danger to us all. Archegos has been compared, with good reason, to Long Term Capital Management, the hedge fund whose collapse in 1998 posed such acute danger to the financial system it had to be bailed out under the auspices of the New York Federal Reserve to the tune of $3.6 billion. Today, family offices are estimated to hold at least $6 trillion in assets—more than the entire hedge fund industry. If one little-known family office is capable of wiping billions off the balance sheets of six investment banks, how long before the Federal Reserve and Treasury step in to prop up a single family fortune?

Billionaire Protection Racket

The early twenty-first century has been kind to billionaires. The decade following the global financial crisis witnessed the largest spike in wealth concentration in postwar America, most of it the result of asset price gains accruing to the already rich. During the peak months of the pandemic, between 2020 and mid-2021, surging asset prices catapulted almost one hundred new billionaires onto the Forbes list of richest Americans.

How long before the Federal Reserve and Treasury step in to prop up a single family fortune?

Just as significant as the scale of this wealth is its distinct organizational form—private, unincorporated, and often family-based, as opposed to corporate, publicly owned, and managerial. Inflating asset prices have released the richest Americans from the grip of outside investors, turning personal and family wealth holders into standalone economic and political forces, at least as powerful (if not more so) than the old elite of corporate CEOs, investment bankers, and party factions.

Admittedly, the very largest family enterprises have always enjoyed a certain operational freedom when compared to publicly traded corporations. Most of them are either privately owned (Cargill, Mars, and Koch Industries, for example) or controlled by family members holding majority ownership stakes (Walmart and the Waltons), affording them a unique power to disregard stakeholder noise. But in the last decade or so, the political and economic clout of these companies, along with their asset valuations, has grown beyond all measure. During the pandemic years alone, the top ten families in the Forbes 400 saw their net worth increase by the billions. The wealth of the Lauder family almost doubled, adding close to $22 billion in the space of two years. The Koch family gained $17 billion; the Waltons an astonishing $30 billion.

In recent years, these Forbes 400 regulars—first-, second-, and third-generation beneficiaries of inherited wealth—have been joined by a new class of billionaires, most of whom made their money in alternative asset management or platform startups such as Uber or Airbnb. As newcomers to the list, men such as Uber’s ex-CEO Travis Kalanick or Palantir’s Peter Thiel are hailed as self-made billionaires by the business press and offered up as evidence that American capitalism has not yet turned completely oligarchic. If the American economy is still capable of churning out Schumpeterian heroes such as these, the story goes, then surely meritocracy lives on and will eventually outpace the slow sedimentation of inherited wealth. Yet the same billionaire entrepreneurs who pulled themselves up by their upper-middle-class bootstraps typically go on to found dynasties of their own. When they cash out their stakes in a private tech startup or close a private equity fund, they invariably channel their fortunes into a family office, and so lay the foundations for a new lineage of twenty-first century Rockefellers and Vanderbilts.

Until recently, the large family enterprise was considered a marginal player in American capitalism, long since made redundant by the modern “democratic” structures of managerial capitalism. Economic historians such as Alfred Chandler routinely dismissed the familial form of business management as archaic, an impediment to industrial progress—better served, it was thought, by the separation of powers and distributed ownership of the publicly traded corporation. And for most of the twentieth century, this analysis was borne out by the evolution of American business, which progressively absorbed the family dynasties of the Gilded Age into the anonymous shareholder crowd, confining the great majority of family ventures to the small business sector. A handful of classic family dynasties, among them the Morgans and Rockefellers, have endured since the nineteenth century. But by and large, family businesses rapidly lost their distinct institutional form in the early twentieth century when they were forced to compete with and adapt to the presence of rising industrial conglomerates, with their much greater sources of capital.

Viewed within a longer time horizon, the resurgence of the large, privately held family enterprise can be understood as one of the many unforeseen side effects of the shareholder revolution and its reshaping of corporate power. Once valued for the economies of scale it offered large industrial ventures and the liquidity it afforded investors, the publicly traded corporation was the undisputed focal point of American business for much of the twentieth century. It has long been associated with a particular style of capitalism—dubbed “managerial” by Chandler—and was challenged in the 1980s by the ideology of “shareholder capitalism,” with its overriding concern for maximizing investor returns.

In hindsight, it appears that the shareholder revolution, meant to shift the balance of power from the professional manager to the owner-investor, also ended up undermining the raison d’être of large-scale ownership itself, as a generation of corporate raiders discovered they could best maximize “shareholder value” by limiting the number of owners to a handful of private activists. Michael C. Jensen, one of the fathers of shareholder value theory, foresaw as much in the late 1980s when he noted that the leveraged buyout craze would signal the death of the public corporation as it had existed throughout the twentieth century. Although the obituary was premature, time has tended to confirm Jensen’s insight.

It would take a series of key tax and regulatory reforms to turn the hostile takeovers of the 1980s into the more respectable form of the mutually agreed-upon private equity deal. But by the first decade of the millennium, more and more firms were going private, while startups were waiting much longer to make an initial public offering—if they chose to do so at all. Private investment funds have grown precipitously since the global financial crisis and now command so much capital that they offer a serious alternative to public securities markets. As recently as the early 2000s, the only real options for companies that wanted to expand was an IPO or the corporate bond markets. Today, it is no longer necessary for a company to go public when it wants to scale up operations; it has only to find a congenial investment fund to shepherd it through the transition phase.

The regulatory contract that guided corporate funding for much of the twentieth century (public accountability in exchange for a wider pool of capital on the public markets) is now largely broken. Small startups and growing companies can reach colossal size on the strength of private capital alone, and as long as they remain in this state, they are shielded from the disclosure rules that used to come with public listing. In recent years, we have seen a sharp fall in newly listed public corporations and a corresponding rise in the numbers of so-called unicorns—private companies with valuations of one billion dollars or more. Large-scale privately held companies such as Koch Industries were once rare enough to warrant their reputation as near-mythical creatures, but unicorns have become an increasingly common sighting, especially among tech startups that would once have followed the trajectory of the early IPO (think Uber, Airbnb, PayPal, and Dropbox, all of which were valued at well over a billion before they floated their shares). When companies such as these choose to go public, it is generally to allow early investors and employees to cash out their illiquid shares, not because they need to access the capital available in public share markets. This shifting funding environment has transformed the organizational landscape of American business beyond recognition. The new crop of privately held companies are bigger and more dynamic than they were in the past, and they exist in close symbiosis with the market for private capital. Public corporations are in no danger of disappearing, of course—in fact, the most prominent among them are getting larger and more monopolistic—but there are fewer of them, and those that survive have typically left behind the stage of greatest expansion. While private investment markets finance the bulk of new entrants and rapidly growing companies, public markets are fast becoming a “holding pen for massive, sleepy corporations,” to quote the legal scholar Elizabeth de Fontenay.

For many years, private equity firms were the most significant provider of growth funds outside the public markets. Family offices now operate alongside them, sometimes surpassing their more established rivals in the scale of their assets and the size of their investment positions.

Family Wealth Fun

John D. Rockefeller is thought to have created the prototype family office when in 1893, he hired a dedicated team of professional staff to manage his sprawling investments and philanthropic ventures in-house. A relic of the Gilded Age, the Rockefeller family office survives to this day, having trained generations of heirs in the fine art of wealth preservation, and now sells its advisory services to family offices worldwide. Family offices had a resurgence in the 1980s, and their numbers have continued to creep up since then. But the real explosion took place after 2010, as a result of the surging asset prices brought about by the Federal Reserve’s decision to break with its own self-imposed taboo against “debt monetization” by actively purchasing Treasury debt, mortgage-backed securities, and corporate bonds from primary dealer banks. This long wave of asset price inflation lasted up until July 2022, when Fed chairman Jerome Powell finally reversed direction (significantly, he did so only because he feared that real wages were about to rise).

During the peak months of the pandemic, between 2020 and mid-2021, surging asset prices catapulted almost one hundred new billionaires onto the Forbes list of richest Americans.

While family offices continue to perform the traditional work of wealth preservation, overseeing everything from tax avoidance to succession planning on behalf of their members, the new generation is increasingly oriented toward active asset management. High-net-worth households typically have many years of experience working in partnership with private investment firms, for the most part passively investing in deals sponsored by outside general partners. But now that they find themselves with sufficient resources to rival standalone private investment firms, a growing number of them are able to forego exorbitant management fees by employing private equity or hedge fund professionals in-house and taking active charge of acquisition deals. As a rule, even passive private equity investments generate higher returns than the average portfolio of stocks and bonds or shares in an exchange traded fund; active private equity investments, however, deliver by far the highest returns (an average of 27 percent in the United States, according to the latest measures).

In their strategic acumen and appetite for bold maneuvers, the new-generation family offices look very much like hedge funds and private equity firms, except for the fact that they are wholly independent of the whims of outside partners such as institutional investors. But the influence cuts both ways, and family offices are also leaving their imprint on the world of private investment, most notably in the recent trend toward “permanent capital” holdings in sectors such as rental housing or infrastructure. The classic private equity firm is notoriously short-sighted in its investment horizons, typically wiping its hands of a deal after five to seven years. By contrast, the family wealth fund doesn’t come with a fixed expiration date. “Permanent” or long-dated capital is a natural fit for family offices thinking in terms of multigenerational wealth management, and this is a quality that institutional investors are increasingly looking for in private equity too. Although it may not be the solution that critics of corporate myopia were hoping for, the family office is steadily replacing the accelerated horizons of the private equity firm with the long vistas of dynastic wealth expansion.

For a decade or so, family offices have enjoyed a distinct legal advantage over other alternative investment funds. Following the global market meltdown of 2008, Congress set out to bring private fund advisors under regulatory oversight by requiring them to register with the Securities and Exchange Commission and publish quarterly reports on their activities. Until that point, hedge funds and private equity firms had operated under the so-called private advisor exemption, releasing them from public disclosure. Under its terms, they could act on specialized knowledge without tipping off other market investors and stake out high-risk positions with other peoples’ money without fear of litigation. The Dodd-Frank Act ended this exemption for most hedge funds and private equity firms on the grounds that their activities could pose a systemic threat to markets, yet it reaffirmed protections for family offices, thanks to a concerted lobbying drive by a group of family wealth fund executives called the Private Investor Coalition. This gave family offices an edge over other private investment firms at the very moment they were coming into extreme wealth—prompting several hedge fund managers, among them George Soros, to reimburse their outside investors and convert their funds into family offices.

Beyond its regulatory privileges, the family office occupies an enviable tax position: not only is it eligible for the same tax advantages as private equity (chief among them the carried interest loophole, which allows its income to be taxed at the preferential capital gains rate), it also falls under the special tax protections of the family. In its current form, U.S. tax law allows wealth holders to build up vast asset portfolios without ever incurring the capital gains tax—so long as they transfer these assets to their children and grandchildren rather than selling them to outside parties. (Nonprofits are exempt from the capital gains tax altogether.) The possibility of permanently deferring the realization and taxation of capital gains is available to no other economic institution but the family, making it uniquely placed to consolidate the wealth derived from appreciating asset prices. The closest equivalent is the so-called 1031 exchange, which allows a taxpayer to postpone capital gains tax on an investment property—perhaps indefinitely—so long as they exchange it for an investment of equal market value. But while the 1031 exchange is limited to one asset class—real estate, the family capital gains tax applies to all assets passed from one generation to another and is therefore much more comprehensive in scope[*]. (And even if inheritors choose to sell up assets, moreover, they will only be taxed for the gains made after the moment of inheritance, leaving the wealth accrued during the lifetime of the testator untouched.)

The scope of the family tax shelter becomes palpable when we consider the growing proportion of family wealth that derives solely from asset price appreciation. As of 1997, 36 percent of the total value of all estates was held in the form of unrealized capital gains—wealth that passively accrued to the owner as a simple consequence of rising market values. Two decades later, this percentage stood at 32 percent for estates worth between $5–$10 million and as high as 55 percent for estates worth more than $100 million. In theory, some of this wealth will be subject to the estate tax. But by 2017, successive supply-side tax cuts had elevated the tax-free threshold on estates to $22.8 million for married couples—and in any case, the savviest of clans routinely make use of trust arrangements to escape the burden altogether. We do not usually think of the family as part of the tax shelter industry. But there is good reason why the same investors who hide their wealth in distant tropical islands and dream of permanent seasteads off the coast of California are also those who make regular use of the family as a form of “inshore” tax protection. Quite simply, the family is a tax haven like no other.

When asked to explain its special treatment of the family office under the terms of the Dodd-Frank Act, the Securities and Exchange Commission cited its concern that “application of the Advisers Act would intrude on the privacy of family members.” It was preferable, in their view, that “disputes among family members concerning the operation of the family office could be resolved within the family unit” or in state courts under the auspices of family law. But what are the consequences for the rest of us when one ultra-wealthy family can bring six investment banks to their knees and family disputes can lead to the liquidation of billions of dollars in wealth? The “private” dramas of family dynasties are risks that we all bear, thanks to the determination of monetary, fiscal, and regulatory authorities to guard the secrets of the rich and prop up their power.

America’s Top Moguls

The historian Steve Fraser remarks in an essay for Truthout that the “resurgence of what might be called dynastic or family capitalism, as opposed to the more impersonal managerial capitalism many of us grew up with, is changing the nation’s political chemistry” along with its economic structures. In the last decade or so, America’s wealthiest families have become political kingmakers, exerting an influence at least equal to traditional party factions. In the wake of the 2010 Citizens United decision, many feared that the floodgates would open to a deluge of corporate money. As it turns out, however, blue chip corporations have shied away from super PACs for fear of the backlash they might suffer at the hands of activist investors and social media warriors. In 2012, the first year in which outside groups played a significant role in funding elections, publicly listed corporations contributed less than 0.5 percent of the money raised by the most active super PACs; six years later, during the 2018 midterms, they still accounted for less than 5 percent. Most of these were fossil fuel companies that have nothing to lose from backing conservative causes. For the average listed company, however, the reputational risks of overt political preference are just too high. S&P 500 corporations are not so much “woke” as contractually obligated to shareholders and constantly vulnerable to the risk of consumer backlash. Private, unlisted companies and their general partners are far less constrained—and it is these actors that contribute the vast majority of super PAC money.

Until recently, the large family enterprise was considered a marginal player in American capitalism, long since made redundant by the modern “democratic” structures of managerial capitalism.

A New York Times investigation into the political donations fueling the 2016 presidential primaries found that ultra-wealthy families had supplied almost half of the money for Republican and Democratic contenders in the early stages of the election cycle, most of it through channels opened up by Citizens United. The profile of these donors, the Times noted, reflected the changing composition of the American elite and the growing importance of private, family-based investment funds in the high spheres of financial capitalism. Very few of the donors belonged to the “old” world of investment banking, institutional investment, or corporate management. And relatively few were heirs to old money. Most of them had amassed their fortunes in private asset management and had ridden the post-millennial wave of soaring asset prices to gargantuan personal wealth. These were the founders of new dynasties, not heirs to the old. Among the super donors of 2016, the largest single faction made their fortunes in private equity, hedge funds, and venture capital. The next two largest groups were concentrated in real estate and construction and oil and gas.

The 2016 presidential elections were a show of force for the billionaire donor class. Investors who hailed from the world of private equity and hedge funds were angered by provisions in the Dodd-Frank Act that subjected them to new public disclosure requirements and were fearful that the Democrats, under Hillary Clinton, would hold good on their threat to abolish the carried interest loophole. Republicans, especially those veering to the hard right, thus became the chief beneficiaries of super PAC largesse in the early stages of the campaign. The families who made the largest and earliest donations to the Republican campaign (among them the Mercers) favored Tea Party candidate Ted Cruz, who railed against “woke” corporations and presented himself as a friend to the “small” unincorporated business. It was only when Trump emerged as the presumptive nominee that mega-donors such as hedge fund billionaire Robert Mercer rallied behind him.

Although Trump was not their first choice, private investment donors were clearly rooting for Republicans in the 2016 campaign. Early observers of super PAC money took this to mean that the new billionaire donor class would inexorably skew right. But things have not turned out that way.

The Democrats have their own dynastic consorts, most prominent among them George Soros and Henry Laufer, as well as individual members of the Pritzker, Walton, and Lauder clans. The class composition of the Democrats’ billionaire donor base is indistinguishable from that of the Republicans, except for the greater concentration of its private investor faction in the West Coast tech sector and relatively slim presence in real estate, construction, and fossil fuels. Many of the hedge-fund men who supported Trump in 2016 stood on the sidelines in 2020, coughing up a mere $3.6 million for his campaign and its allied super PACs. In the same election cycle, private equity and hedge fund managers channeled a massive $21 million into the Biden campaign, despite the fact that Biden was threatening to tax investor income at the ordinary rate rather than the capital gains rate. The assurance of political stability, it seems, was more important than tax preferences (which in any case, the Biden administration has thus far failed to abolish).

The family can be a tax haven like no other.

But whether they lean Democratic or Republican, America’s billionaires are remarkably united when it comes to the economic issues of taxation and public spending. In their 2018 study of ultra-wealthy donors, political scientists Benjamin I. Page, Jason Seawright, and Matthew J. Lacombe found that billionaires overwhelmingly favor low taxes on capital gains and inherited wealth and look askance on public programs such as Social Security. Although the media pronouncements of figures such as Warren Buffett, Bill Gates, or George Soros seem to indicate the existence of a broad billionaire center pushing for a greater taxation of wealth, the fact is that most billionaires don’t express their political views in public and very few share positions as progressive as these. The few “centrist” billionaires who have openly called for a higher estate tax, moreover, have conveniently spent very little money to ensure that such changes are implemented.

As writer Doug Henwood notes, the one clear point of distinction between Democrat and Republican-leaning billionaires is the fact that the latter are much more energetic organizers and institution-builders. Business dynasties such as the Kochs, the Mercers, and the Uihleins have spent many years pushing the Republican Party to the right through the vast network of policy institutions they have built up.

What They Do Is Secret

Thanks to Donald Trump, we now know how readily the presidency can fall under the spell of a ruling family elite. The Trump administration was memorably described by one former volunteer as “a family office meets organized crime, melded with Lord of the Flies.” As Adele Stan noted in these pages early in the Trump years (“What We Do Is Secret,” Baffler no. 35), it is significant that Trump, along with his most trusted advisers, came into wealth through private companies with few or no obligations to outside investors[*]; these were “people who [had] thrived in a culture of unaccountability and self-dealing.”

The details of Trump’s time in the White House reveal an extraordinary subversion of the norms of executive power. Immediately after his inauguration, Trump placed relatives, family retinue, and former business partners (and often their kin) in strategic positions. He purged some of the most qualified office holders from federal agencies and deliberately neglected to replace the many others who resigned in silent protest. It appears that most of these vacant positions were then filled by “acting” office holders, under a provision that avoided the usual process of Senate scrutiny and confirmation—an adroitly formal use of the law that kept office holders tightly dependent on Trump’s favor and always conscious they could be dismissed on a whim. If agency staff were not already personally aligned with Trump, they soon learned that tribute and flattery were the only ways of getting things done.

The same kind of deference was demanded of outside negotiators and Republican Party apparatchiks. Corporate lobbyists and foreign states alike appear to have rapidly absorbed the lesson that direct tribute was to be paid to the president in the form of services purchased at the Trump International Hotel in Washington, D.C., or a visit to Mar-a-Lago. And instead of facing off against each other, Republican Party factions were now reduced to the same status of supplicants, whose disputes could only be adjudicated by Trump and his close family associates. For all his talk of a deep state, Trump demonstrated just how frail the much fabled “checks and balances” of the American system have become in the face of political corruption. Crucially, in addition to his lavish giveaway to the rich in the form of the 2017 tax cuts, Trump accelerated the gutting of the Internal Revenue Service that was begun by Republicans in 2011. During his administration, the agency struggled to pursue routine checks and was rarely able to finance the resource-intensive audits required to uncover the complex shell companies and other shelters deployed by the ultra-wealthy. As political theorist Jeffrey Broxmeyer observes, the Republican Party under Trump, came closer than ever to realizing the New Right’s dream of deconstructing the administrative state—but in doing so, it sacrificed its own power to that of the Trump family.

What distinguishes today’s emergent ruling families from their Gilded Age forerunners is the fact that their wealth is actively fostered now by the fiscal and monetary authorities that once reined them in.

As a heuristic for understanding the Trump presidency, it is hard to beat Weber’s account of patrimonial power in Economy and Society. Here Weber distinguishes between the bureaucratic style of government, where the office “is separated from the household,” “business assets from private wealth,” and the patrimonial form of power, which blurs the boundaries between politics, economics, and the household. Both the modern state and publicly traded corporation—as quintessential expressions of bureaucratic power—rely on the impersonal mediation of professionals to perform their functions. The patrimonial ruler, by contrast, treats “political administration” as a “purely personal affair” and considers “political power” to be “part of his personal property, which can be exploited by means of contributions and fees.” Under his dominion, extended kinship relations serve as prototype and privileged instrument for establishing networks of power: marriage is strategically deployed to seal commercial ties and business relations themselves take a kin-like form, turning partners into quasi-brothers and employees into household retinue. Beholden to no other authority outside his own circles, the patrimonial master “wields his power without constraint, at his own discretion and, above all, unencumbered by rules.”

At first glance, Weber’s catalog of powers suggests a stagist view of history, in which successively more rational, impersonal, and bureaucratic forms of power evolve out of and shed their primitive selves with implacable momentum. On this reading, the term “patrimonialism” must be reserved for pre- or postcapitalist forms of power; its resurgence, under Trump, would indicate a return of the premodern or the end of capitalism as such. Despite the linearity of his narrative, Weber is more nuanced than this. A typologist of power rather than an evolutionary thinker, Weber acknowledged that patrimonial power could coexist with and facilitate forms of wealth creation that were recognizably capitalist, albeit distinct from the bureaucratic style of management that was rapidly gaining ground at the time he wrote. In fact, the proximate model for Weber’s writings on patrimonialism was not Pharaonic Egypt or the Inca empire but his own very claustrophobic extended family—a Gilded Age dynasty of merchants with commercial interests stretching from Manchester to Cuba and Argentina.

In their attempts to capture the strangeness of our contemporary moment, several theorists have turned to the idea of neo-archaism, evoking a historically vague “feudalism” as precedent to our current moment. We need not look so far. The long Gilded Age, stretching through and beyond the late nineteenth century, saw levels of wealth concentration equal to our own. Its economy was dominated by family-owned and managed companies that had few obligations to outside investors and relied heavily on the resources of private financiers such as J. P. Morgan. By forging horizontal alliances among themselves, these ultra-wealthy family enterprises grew into vast industrial “trusts” monopolizing entire sectors of the economy. Their tireless efforts to capture the political process culminated in the ascension of the plutocrat’s friend William McKinley to the White House in 1896 and a Senate so heavily populated by the ultrarich it was nicknamed the Millionaires’ Club. Gilded Age clans like the Rockefellers, the Vanderbilts, and the Mellons continued to flourish during the Republican-dominated 1920s. Their share of national household wealth reached a peak in 1929—fittingly enough under the watch of Treasury Secretary Andrew Mellon of the eponymous banking dynasty—before succumbing to the redistributive agenda of the New Deal.

During the 1930s, President Roosevelt, with the cooperation of the Treasury, seized the powers of the United States’ fledgling tax system to enact a broad redistribution of wealth. The Revenue Act of 1935 raised the capital gains tax to its highest level yet, pushed up the estate tax rate to 70 percent, and increased overall taxation of the wealthy by nearly 50 percent. The Federal Reserve, too, entered a new phase in the 1930s, when it temporarily freed itself from the constraints of gold to become an active enabler of Treasury spending. Turn-of-the-century Populists and progressives had fought for the establishment of an American central bank as an alternative to the crushing austerity of hard money; but it was only under Roosevelt that the Federal Reserve (established in 1913) made good on this promise by lending its full weight to the expansionist agenda of the New Deal. It was thanks in large part to the cooperation between a big-spending Treasury and an accommodating Federal Reserve that the great fortunes of the Gilded Age were finally deflated.

What distinguishes today’s emergent ruling families from their Gilded Age forerunners is the fact that their wealth is actively fostered now by the fiscal and monetary authorities that once reined them in. In recent years, the Federal Reserve has acquired powers of national and international market intervention that were unimaginable in the 1970s, let alone the 1930s. It has broken all the conventions of monetary restraint to engage in massive open market operations and manipulate the price of securities. Yet it has consistently used these powers to inflate asset values, while doing everything possible to block any greater distribution of social wealth. By the same token, the American fiscal regime, which once taxed marginal incomes and inherited wealth at higher levels than any other industrial nation, has become so regressive it must be considered an instrument of wealth generation in the hands of the rich. The resurgence of dynastic wealth is the most visible symptom of a counterrevolution that has annexed the full powers of the central bank and Treasury. What would it take for us to reclaim these formidable powers of wealth creation and unleash them for the many?

[*] Correction: The print version of this story characterizes the family as the only economic institution that has recourse to the permanent deferral of the realization and taxation of capital gains. This is true only if we are referring only to economic institutions in which capital gains would otherwise be taxable but does not extend to nonprofits which are exempt from the capital gains tax altogether. Additionally, the print version of the story incorrectly characterizes Donald Trump as coming into wealth through private, unincorporated companies. We have updated the piece accordingly and regret the errors.