Introduction
I am a firm believer that a combination of free market, sound money and private property creates the best environment for proper wealth distribution among people. By “proper distribution” I absolutely do not mean equal distribution. A proper distribution translates to the deserving ownership of resources. In Human Action (Part Four: Catallactics or Economics of the Market Society), Ludwig Von Mises argues that property is not a privilege but rather a burden on the owner. To quote him:
“Ownership of the means of production is not a privilege, but a social liability. Capitalists and landowners are compelled to employ their property for the best possible satisfaction of the consumers. If they are slow and inept in the performance of their duties, they are penalized by losses. If they do not learn the lesson and do not reform their conduct of affairs, they lose their wealth. No investment is safe forever.” — Ludwig Von Mises
With that being said, equal ownership of the means of production should never be considered as a desirable outcome that people, or more specifically the lower classes, would strive for. In a free unhampered economy, you own what you deserve. To quote another, more recent Austrian Economist:
“What causes poverty? Nothing. It’s the original state, the default and starting point. The real question is, what causes prosperity?” — Per Bylund
This description of nature is intended to explain that people are born by default with nothing, completely naked. No one is born with the rightful claim to any property or resource. The only way to acquire property is through someone else giving it to you as a grant (which could be manifested in the form of inheritance) or in return for something else, voluntarily. The only real property that no one else gives to you is yourself, your body, your time, and your energy which can be used to produce goods and services which in turn you can exchange for other goods and services, i.e., acquire other property for yourself. This is the absolute natural mechanism of wealth distribution, anything that diverts from this phenomenon requires nothing less short of the use of violence. To further explain this, as we have established previously, humans are born naked into this world. Imagine an isolated economy where it is law for every economic individual to own exactly as much resources as the next one. Let’s call it the law of equal distribution. When we speak of an ‘economy’, the rules of scarcity must apply, no questions asked. Let’s say this economy consists of 1,000 units of resources for exactly 10 people, each person would own 100 units of resources under the law of equal distribution. Let’s assume 10 additional people join the economy, the only way to abide by the law of equal distribution is to forcibly snatch 50 units of resources from the already existing 10 economic individuals and hand them to the newly joined ones. This indicates that the only way you can divert from the natural distribution of resources is through the use of violence. However, this makes the entire aforementioned example completely contradictory and missing one important input. If the entire economy consists of 10 equal people, then who will use force against them to steal their resources and hand them to the new joiners? This brings us to the fact that the law of equal distribution is an oxymoron by definition. To achieve equality between a group of people, you need one non-equal participant to forcibly keep equality in check (arguably, the non-equal participant always fails to do so). But, if we had one non-equal participant, then equality would simply be non-existent. It is important to note however, that in theory you can somehow achieve equal distribution of resources under the free market. If we simply assume that the 10 already existing individuals would voluntarily give the 10 new joiners, the 50 units of resources. However, the free market does not promise this exchange to happen, it simply puts it on the table as a possible outcome.
As a reader who have reached this point in the article, you might want to ask, why is this being discussed and how is this relevant to what I am about to discuss? Often times, the free market and capitalism are blamed for the reality that I am about to describe. I am writing this article to dissect this notion and to present the reader with examples and proof that it was the opposite of the market economy that led to the events that will be mentioned next. The free market does not promise equal distribution, but it guarantees a fair distribution, under the pretence that you own what you deserve to own. The ownership of resources is positively correlated with the ability of entrepreneurs to effectively predict the market through taking risks. In other words, the entrepreneurs who beat other entrepreneurs at predicting the market would in general own the most property and resources under a free market economy. This is common sense, if entrepreneur A accurately predicts that building product X will be sold much better in the market than building product Y, A will beat entrepreneur B, who built product Y, at taking over the bigger percentage of market share. Therefore, A will acquire more resources (it could be in the form of money) than B. Considering everyone had equal opportunity to make the same prediction of A, under the assumption of a free market, this keeps the market in fierce competition and rarely any one participant would enjoy upper hand over the others in the course of satisfying the consumer. How was this mechanism disrupted? Why is the distribution of resources today completely out of place? It seems like the 1% own the vast majority of resources, as they were able to acquire the above-mentioned upper hand in almost all industries. Why did that happen? Let’s discuss.
Blackrock Inc. Owns Everything
Before we dive deep into “why this happened”, let us first discuss what indeed happened. I would like to present the famous example of BlackRock Inc. the biggest investment management company in the world, founded in 1988. It is almost safe to say that if you live in the west or even in parts of Africa and Asia, you are contributing to the growth of this company one way or another. By the beginning of this millennia, Blackrock was holding $165 billion in assets, today it holds over $9 trillion in assets, including but not limited to, company stocks and real estate. You name it, any global company that you might think of could be owned by Blackrock, and in many cases, BlackRock could own a big percentage of it.
Ownership in major companies:
BlackRock Inc. owns shares in almost all major banks in Europe, North America, and Australia. It owns shares in all the following American banks: JP Morgan, Bank of America, Wells Fargo, Citigroup, U.S. Bancorp, Trust Financial Corporation, PNC Financial Services group, and more. Thus, if you have deposited money, took loans, or performed any banking service in the United States, you indirectly transacted with BlackRock. The asset management company is also the largest shareholder in Australia’s biggest 4 banks, including Westpack and ING Bank. BlackRock owns shares in some of the biggest banks in Europe too, including Deutsche Bank, CommerzBank, Lloyds Bank (Biggest shareholder) etc. BlackRock owns shares in at least one financial institution in every single European country. Considering BlackRock owns all these banks, this grants them the indirect ownership of all these banks’ investments. Every asset owned by a bank is indirectly also owned by Blackrock.
BlackRock Inc. owns shares in almost all major insurance companies, including but not limited to, Allianz and AIG. Not only does BlackRock owns the insurance companies, but all insurance companies in the United States hold their investments with Blackrock. Blackrock is the biggest holder of insurance investments in America.
Beyond the financial services industry, BlackRock Inc. has a percentage of ownership in all major media outlets. BlackRock owns Fox News, The New York Times, CNN, ABC News, NBC, The New York Post, Sky News, The Sun and more! It even owns social media companies, including the biggest ones, Facebook and Twitter. In fact, BlackRock is one of the biggest owners of these companies. BlackRock is also one of the biggest owners of Disney, Time Warner, Comcast, and News Corp. BlackRock along with The Vanguard group own more than 90% of the entire USA media industry.
Moreover, BlackRock is the largest fossil fuel industry investor, it is specifically the largest investor in coal plant developers, holding shares amounting to $11 billion dollar distributed between 56 coal plants. It gets ironic when you find out that BlackRock is one of the biggest promoters and investors in the environmental, social, and corporate governance movement (ESG). BlackRock has been hired by the European Union to advise on integrating ESG features into financial regulations. Moreover, Being an owner in most major global corporations, BlackRock was able to vote on ESG policies in those companies. They pushed for diversity, equality, and renewable energy. While at the same time funding projects that represent the complete opposites of these movements.
The investment company is also a huge participator in the pharmaceutical industry. BlackRock owns shares in Pfizer, J&J, Merck among others. In fact, BlackRock is among the three largest owners of these companies. And among these three largest owners is again The Vanguard Group. You thought these companies were competing against each other? Think again, they are all trying to maximize the profits of the same shareholders.
You are directly or indirectly transacting with BlackRock on almost a daily basis. You transact with BlackRock when you do the most basic daily life activities like paying with a debit card at the supermarket or even turning on your TV to watch a movie or the news. Furthermore, your sources of electricity are made possible through a company that BlackRock owns or directly funds. It gets even better, what if I told you that BlackRock has an impact on the house you live in? If you live in The United States and plan to buy, sell, or even bought or sold a house, chances are you have to or will have to interact with BlackRock or other similar investment company to complete this exchange. Recent numbers suggest that BlackRock owns $60 billion in real estate and this number is inevitably bound to increase. Since the pandemic started, the federal reserve increased the supply of the US dollar by more than 33%, this led to a huge inflationary episode in the housing industry in America. BlackRock, among other investment companies, is currently taking advantage of this situation and buying up family homes by being the biggest bidders.
The question remains, who owns BlackRock? BlackRock is a publicly listed company, meaning anyone can buy shares in it, that should surely mean that the ownership of this corporation is somewhat logically distributed. Not quite. Only 10 wall street companies own almost 33% of BlackRock, with the biggest being The Vanguard Group, which owns 25% of the 33% or 8% of the entire company. But who is the Vanguard Group? It’s just another investment company that owns $7 trillion in assets. BlackRock is the biggest asset management company in the world, guess who’s the second. Vanguard, the biggest owner of BlackRock! And many of BlackRock’s ownerships are also partly owned by The Vanguard Group as well. I invite the reader to run the numbers on how much these two companies own together.
With this example explained and in light of the few other similar examples that exist out there, it is safe to assume that the distribution of resources is not a case of 20/80 balance. Where the 20% or so own the 80% or so. It seems like the whole world is owned by the 1% or even way less. But what’s the point of all this? What’s the problem here? Are BlackRock and The Vanguard Group evil corporations that we should never allow so much power and property? Not quite. Let’s go back to Mises’s quote, property is a burden and not a privilege. These companies had been doing something right for many years to acquire all this wealth and grow as large as they are today. Nevertheless, they did squeeze the wealth of the planet into the hands of the few, is this really the endgame of the market? The free market shall I say? The answer is, we do not have a free market.
The Market Is Not Free
Many ways the government can tangle with the natural resource distributive tools of the free market. As mentioned previously, in a free market, the only way someone else can take your property is by you voluntarily giving it up, for whatever reason that might be. Meaning that it is not a zero-sum game. Even if we end up with a squeezed market like the one we have today, it should be considered not only legitimate, but also satisfactory to all market participants. The only way we can slip away from this non-zero-sum-game is through the use of violence. Violently separating a property owner from their property is never satisfactory from the individual’s point of view. Government, being the violence monopolist through its policies aims to do exactly that. In Western nation states, the government will not literally go to your house, put a gun to your head and force you to give up your belongings or at least that’s not a very common theme. The government has much more sophisticated ways of taking away what’s supposedly yours. The government uses taxation laws, price control laws, protectionist laws, licensing laws, competition laws etc. It also uses itself as a market participant with seignorage advantages, to take over whole industries and monopolize them.
All of these, arguably atrocious, government interventions in the market are relevant to discuss the apparent control over the economy and our clear-cut stray away from economic freedoms. Nevertheless, one might ask, how are these factors relevant in our main discussion regarding investment management corporations owning the world? They are not, or they are not as relevant as fiat money, central banking, and the control of interest rates.
Fiat Money Creation & The Central Banking Cartel
In his book The Creature from Jekyll Island, Edward Griffin explains and presents proof of how the Federal Reserve was created and what were its advertised intentions in contrast to its actual intentions. For congress approval, the Fed was supposed to be an institution that prevents economic cycles (booms and busts), keeps the dollar strong, keeps interest rates at proper levels and keeps employment high. However, the Fed was nothing less short of a legalized banking cartel. It was a bunch of bankers who met secretly in early 20th century to give birth to the Federal reserve. The idea was to cartelize the banking sector, get the dollar off the gold standard, and control the money supply through manipulation of interest rates. The main goal was to gain Cantillon privileges and exercise control over the global market.
In his book, The Fiat Standard, Saifedean Ammous explains the process of money creation under fiat, and he calls it “fiat mining”. It is rather a misconception among people who think that the dollar gets created by simply pressing some buttons to print it whenever the government wants. Even though that is accurate to some degree, but it truly only tells us a very small part of the story. In fact, money creation happens through debt, and people’s incentive to take on debt is based on the level of interest rate. Every time a bank issues a loan to you, it is not issuing it based on excess deposits, it is simply “creating” this money for you to spend. With the central bank’s control over the interest rate levels, they effectively control the issuance rate of the dollar. If the Fed wants to flood the market with fiat, they lower interest rates and encourage people to take on debt (which creates money). This process of interest rate manipulation is the sneakiest government tool to control and intervene in the market. Not only does it give advantage for certain market participants, but it also ruins market signals for the majority of economic individuals who are at the base of the hierarchical pyramid.
How is it advantageous for some market participants? Because of a system that is based on universal debt, huge wealth individuals strive to hold a huge balance of debt. They take on low interest rate loans, which increase the money supply, and buy forever appreciating assets. It gets even better for corporations, the more they acquire assets, the more they are capable of acquiring bigger debt with even smaller interest rates, including endless payment facilities and with the possibility to repay the debt after a longer period. This is the basic formula for not only “how to get rich”, but also how to stay rich and become even richer, while everyone else becomes poorer. Everyone who holds cash that can be loaned out (created out of thin air) into oblivion is getting poorer, and everyone who is taking loans and buying appreciating assets is getting richer. If you have the ability to take on low interest loan and buy a high yielding asset, and you are not doing it, you are simply being defeated by the system. But is this entire story for the road of becoming the biggest asset management company in the world for BlackRock? Not quite.
Going back a bit earlier in time, it’s no coincidence that BlackRock became the biggest asset manager in the world in 2009, right after the 2008 global financial crisis. As the banks and insurance companies were on the brink of default, we all know the Federal Reserve had to step in for bailouts. The Fed assigned BlackRock to superintend the $130 billion-debt settlement of US bank Bear Stearns and the American insurance company AIG. Moreover, the U.S. Government made a deal with BlackRock to help resolve the fallout of 2008. In 2009 BlackRock became the number one asset manager in the world after its acquisition of Capital Management, and Barclays’ BGI unit which included the ishares ETF.
In early 2020 and as a response to the pandemic, The Federal Reserve created a facility to purchase ETFs that hold corporate bonds. BlackRock’s fund called ishares along with the Vanguard fund and the State Street fund comprised 99% of the Fed’s ETF portfolio. Through the non-consequential creation of money, the Fed had been able to support the biggest asset management companies in the world by lending them money through a “cushion” program that is intended to be a relief for the pandemic.
Additional to their ESG lobbying efforts, BlackRock had been able to acquire cheaper loans on the account of doing ESG investments. It is the so-called “green bonds”, some investors want to finance ESG related projects, so companies would offer lower yielding bonds to those investors. These are only few examples of how BlackRock has been able to benefit from Government control over money and banking. It’s safe to mention that not only BlackRock benefited from all these advantages, but almost every “too big to fail” corporation had its own piece of the cake.
Conclusion
It is quite ironic to blame the market economy for the world’s “injustice” manifested in the atrocious reality of resource distribution, when in fact it is through government intervention, lobbying, and government issued money that most of these top corporations or the so-called “1%” (who are way less than 1%) were able to climb up the ladder and become the biggest owners of property and creating what resembles an Oligopoly on the market.
Notes
1- Ludwig Von Mises, Human Action, Part 4: (Catallactics or Economics of the Market Society.
2- Per Bylund, Twitter thread: https://twitter.com/PerBylund/status/665900726388785153
3- Graham Steel, The New Money Trust How Large Money Managers Can Control Our Economy and What We Can Do About It, https://www.economicliberties.us/our-work/new-money-trust/
4- Matt Levine, BlackRock Borrows Against Diversity, https://www.bloomberg.com/news/newsletters/2021-04-07/money-stuff-blackrock-borrows-against-diversity
5- BlackRock 2020 Annual Report, https://www.blackrock.com/corporate/literature/annual-report/blackrock-2020-annual-report.pdf
6- Edward Griffin, The Creature from Jekyll Island, Chapter 1: “What Creature is This?”
7- Saifedean Ammous, The Fiat Standard, Chapter 4: “Fiat Mining”
