Creeping Feudalism

A couple of years ago I published an essay in Perspectives on the threat that creeping feudalism poses to the U.S. economy. Over the last 15 years or so there have been changes in policies, proposals, public attitudes, and even laws that have increased the ability of the rich to keep their estates intact over many generations. This raises the specter of our current extreme inequality resulting in the establishment of a hereditary aristocracy in our country, with control over politics, the economy, and culture.

This activity has been kept very quiet, so doing the research on this topic was difficult. Even with the internet as a tool, it was not easy to find out what was happening, especially in the legal sphere. I have now discovered two recent books on this topic by prominent law professors that deserve wider attention.

Lawrence M. Friedman of Stanford Law School has written Dead Hands: A Social History of Wills, Trusts, and Inheritance Law (Stanford Law Books, 2009). The strongest characteristic of this book is its clear and complete explanations of the current state of the relevant law, especially the laws concerning wills and trusts. I discovered that the situation is even worse than I thought: the Rule Against Perpetuities has been completely repealed in 20 states, opening the door for "dynastic trusts", private family trusts that can accumulate principal, avoid taxes, preserve family control over assets, and never have to be dissolved.

The social history part of Friedman's book is noticeably weaker. He detects something of a movement in contemporary mores towards giving the dead more control over what happens to their estates, and the institutions of government less. This is based on casual observation as much as anything else, and there is no attempt to connect it to other social movements or changes in culture.

Nor does Friedman see much danger in this. He does not think that accumulating dynastic trusts will grow to dominate the allocation of capital, or that wastrel, ignorant children of the upper class will ruin the crown jewels of the society. But he doesn't express much confidence in his conclusions. It has the air of classroom speculation.

The other book is Immortality and the Law: The Rising Power of the American Dead by Ray D. Madoff, of Boston College Law School (Yale University Press, 2010). Though not as detailed in its description of the law, it covers a wider variety of topics, including the treatment of dead bodies, posthumous publicity rights, and copyrights. However, it does not include much consideration of the effects of estate taxes.

Madoff does not venture into social history, or speculate on changes in social attitudes. However, she does offer normative conclusions about the recent direction of public policy. As her subtitle suggests, she believes the dead are becoming more powerful, a conclusion that is hard to avoid. She does not believe this is a good thing, and would like to see the direction reversed by, for example, strengthening the Rule Against Perpetuities and putting shorter time limits on copyrights.

Neither of these books draws out the implications of these new developments for the operation of our economic system. This is where I believe the greatest dangers lie, but then, I'm an economist, not a lawyer. Democratic capitalism (as Michael Novak calls it) is a fine economic system. The crypto-feudalism that we are evolving toward does not promise to work nearly as well.