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Book Review: Capital without Borders: Wealth Managers and the One Percent (Brooke Harrington)

I read “Capital Without Borders,” a book on wealth management, because I wanted a “how-to” book. How could I, were I to become adequately rich, maximize my wealth by using methods available only to the knowledgeable and connected? Unfortunately for my purpose, “Capital Without Borders” doesn’t delve deeply enough into the precise mechanics of wealth maximization to be a useful “how-to” book. But it does contain a wide variety of interesting insights into the world of the new globalized elite, citizens of no country who completely lack positive feeling and loyalty towards their native lands. These insights are the book’s real value.

I ordered this book when I read an article on Harrington’s research in The Atlantic. She is a professor of sociology. When deciding to focus on wealth management, she early identified that the profession was insular, secretive, and not likely to have its practitioners give up its knowledge to an academic who contacted its members out of the blue. Therefore, she went to the trouble of obtaining what is “the accepted global standard for practitioners, the TEP, or Trust and Estate Planning certification,” issued by the London-based Society of Trust and Estate Practitioners (STEP). TEP is a “two-year wealth management training program,” which she earned under her own name, not concealing her purpose of publicly analyzing the wealth management profession. Through this, she both learned the details of wealth management, and, more importantly, met and was able to get to know and interview numerous individuals around the world who earn their living in wealth management (who are quoted using pseudonyms). This is a very impressive accomplishment and gives the reader a high degree of confidence in the book.

Harrington begins by conveying an understanding of wealth management as a profession, with its roots, at least in myth, beginning in medieval stewardship. As with other professionals, a professional code buttressed by fiduciary duties creates a high level of cohesion, loyalty, prudence, and an ethic of “selfless service.” She also discusses the social and personal characteristics that tend to typify wealth managers. Harrington sums up, “As trusteeship emerged in response to the feudal state, wealth management is an outgrowth of the supranational space created and inhabited by the world’s wealthiest families.” “The new norm is to hold a wide variety of assets—many of them globally mobile and fungible—in multiple jurisdictions in a complex of financial-legal structures.” Quoting a Cayman Islands wealth manager, “High-net worth individuals are all pretty similar to one another—they’re a pretty global bunch, with a lot more in common with each other than with people in their own countries.” I will return to this theme of supra-nationalism, or rather exo-nationalism, because I think it is the core insight of the book.

Harrington spends about 40% of the book outlining the wealth management process. She discusses basic types of structures used to protect wealth: trusts, foundations, and corporations, noting (to my chagrin), “There are many more possibilities for achieving these aims than can be explored within this [book].” Harrington notes the three basic threats against which protection is desired: developing world political instability; first-world regulation and taxation; and family conflict (reading about the families who use wealth managers, one gets the impression that their lives aren’t very pleasant). She discusses how the goal of wealth managers is primarily to protect wealth, but that the structures used, in the normal course, allow wealth to grow more reliably than the wealth of the non-rich, since the wealth is more protected from erosion normally resulting from taxes and other liabilities, and in addition lucrative investment opportunities exist for the wealthy that are not available to the normal person. All of this is interesting, well-organized and well-written, though there are few surprises and nothing concrete that could not be obtained from casual reading on the Internet (but the direct quoting of wealth managers adds considerable flavor).

The last third of the book is an extended discussion about wealth inequality, with a focus on the role of wealth management in its creation and perpetuation. Harrington treats wealth inequality as self-evidently bad, and is especially exercised by the inheritance of wealth and therefore the ability, using the techniques of wealth management, to prevent wealth’s otherwise inevitable dissipation within a few generations. Her objection is that wealth should not be durable over time, because “inequalities become stabilized, interfering with the processes of meritocracy and individual achievement that underpin the kind of thriving capitalist democracy Tocqueville described.” She cites Rousseau, Mill, and Bentham in support, and (bizarrely) caps it by approvingly citing the “Communist Manifesto” on inheritances (perhaps she should cite “Mein Kampf” as well?). This is a standard utilitarian perspective—money is fine, even lots of money, as long as you earn it yourself, but money should be mostly confined to its earner, not his descendants, and money has nothing to do with the creation and maintenance of a virtuous and effective ruling class.

Although Harrington quotes the largely discredited Thomas Piketty entirely too much, and fails to consider any but left-wing and utilitarian theorists, I think few would disagree that wealth inequality in America is significant, getting more significant, and is a more important structural problem than income inequality. There is fairly rapid turnover in who is at the top in income, but there is little turnover in wealth. Income inequality still gets all the attention, because it is much easier to identify and quantify. But George Soros would still be an obscene blight upon the world if his income dropped permanently to zero (although, for all our sakes, likely “permanently” for him will not be a long duration from now).

As Harrington says, “wealth captures far more [than income] of what matters conceptually about inequality, such as life chances, access to education, job market opportunities, and political power.” And, despite what the Republican donor class and establishment conservatives want us to believe, it is undoubtedly true that American mobility in both wealth and income is bad and getting worse. Yes, median American wealth has risen, and even the poor are objectively much better off than even a few decades ago, but relative wealth is still important for social comity, and perceived impediments to self-improvement—the perception, at least partially true, that the upper crust has pulled the ladder up—are especially pernicious (although it’s a fair question, which Harrington does not ask, whether we could have this overall increase in everyone’s wealth without increased wealth inequality).

But there is a highly respected alternate view of concentrated, long-duration wealth with which Harrington seems mostly unfamiliar. A Burkean conservative (admittedly a minority in America) does not necessarily object to accumulations of wealth, and their transmission through the generations. In this view, long-term social inequalities, including of wealth, are not only inevitable—they are highly desirable, for they lead both to better government by those raised to higher station, and to social institutions that prevent tyranny, both of the government and of majorities. Harrington does nod to this view with a complaint that modern wealth management has resulted in “the decline of the ‘old money’ ethic among the rich,” with its” sense of obligation to public service and to model civic behavior.” But otherwise she simply treats wealth inequality, and especially concentration of wealth in families, as necessarily being a great evil.

In any case, Burkean theoretical rationales notwithstanding, Harrington is certainly right that today’s wealth inequality is bad. Not because it’s inherently bad. Rather, it’s bad because we do not have a Burkean ruling class, or a ruling class with any Burkean elements. Instead, we have the low, cunning character of the exo-national ruling class in which wealth is now concentrated, typified by the globalist and materialist Davos ethic. These are those who are served by the wealth management profession. The wealthy who appear in this book, seen through the lens of their wealth managers, are not a Burkean class, bound by duty to their country and its service, focused on educating and bettering themselves to perform their duty. Instead, they are parasites of no country, slithering through the legal cracks of the nations they regard not as their mothers, but as their pawns and slaves. They are our ruling class, and they are a blight that has brought low the cultures of the West, mandating self-hatred and contempt for any traditional value or culture. They are best exemplified by the attitudes held by the unelected rulers of the European Union, and by the desperate desire of those such as Angela Merkel to deliberately destroy their own cultures by admitting millions of alien migrants, to whom wealth and power are given and from whom nothing is demanded, least of all any adherence to the traditional culture and morals of the nations who are forced to accept them. (It’s not just the West, either—Harrington explains in several places how wealth managers actively undermine traditional Islamic moral values in the service of Muslim clients. The new global elite hates any system of morals, especially one rooted in a particular culture.)

Harrington notes that “By detaching clients from allegiance and obligation to any particular state, wealth managers weaken those individuals’ need (and perhaps willingness) to submit to any laws, anywhere. As social scientists have known for generations, being a law-abiding citizen depends on a sense of membership in a collective. From that group membership comes acceptance of and adherence to rules: ‘a sense of rights and obligations derived from an identity and a membership in a political community and the ethos, practices and expectations of its institutions.’” Harrington here equates “rules” with “a sense of rights and obligations.” But that is a false equation. “Rights and obligations” are much broader than rules; they imply a Burkean duty to one’s own. Wealth managers, despite their fiduciary service ethic, using modern tools focused on offshore finance not existing prior to the modern era, undermine the social basis for societies around the globe, creating an atomized, disloyal, malice-filled global elite, whose destruction should be a priority of right-thinking people in every country.

Unfortunately, Harrington doesn’t focus on any of this, though it is implicit in the facts she relates and she does mention how political systems can be captured by elites. She is a statist. She views the world through the prism of the state as an independent actor to whom loyalty is owed. The problem for her is that wealth inequality harms the state, undermining the Westphalian system, not that it harms individual nations or their people. But a state itself has no claim to loyalty; it is merely the servant of the nation, and, for the most part in the modern world, a parasite equally as worthy of forced diminution as the global elite themselves. The real problem is disloyalty to the nation, as a proxy for the people and their culture. Harrington misses this, or, more likely, entirely rejects it.

So, instead of focusing on nations and national feeling, Harrington focuses on how small states, such as the Cook Islands or Jersey, can be wholly corrupted by wealth management. This is doubtless true. But it is small beans. The bigger game, and the bigger story, is the corruption of major states, and the nations they serve, by the atomized global elite (to whom increased power is granted by the wealth management profession, as Harrington outlines very well). What else are the activities of George Soros and his ilk other than attempts to corrupt and undermine the sovereignty and stability of the United States? They push deliberately socially destructive policies, ranging from attacks on religious believers to techniques deliberately enabling massive vote fraud, in order to destroy the nation as it is and create the nation as they will it—a malleable tool in the hands of the new malefactors of great wealth, with a leftist social structure and an imploded culture. And Soros, a man with more than a passing resemblance, physically and in his actions, to Rumpelstiltskin, does this not just for his own personal wealth, but because he hates what the old Westphalian and Western order represents, a world of national feeling, national loyalty, and unique (and superior) culture. (Soros, of course, hates his own original country, Hungary, except to the extent it is willing to become a subordinated fungible part of the odious EU experiment.)

Anyway, enough time on the soapbox—on to some other problems with the book. Harrington is a sociologist, not a historian or an economist, and it shows. For example, she focuses quite a bit on the origins of trusts in medieval law. She gets the mechanics right, but the history totally wrong. It is not true that English knights going to the Crusades gave land to what became “trustees” in order to avoid seizure by “the church, the state or rival noblemen.” Nor is it true that “the owner’s wife . . . had no legal standing to own property [herself].” In most of medieval Europe, particularly England, women could very much own property in their own right, and frequently did so. Similarly, they often directly administered estates for absent husbands, including those fighting in the Crusades. (One of the frequent criticisms by Muslims during the Crusades was that the “Franks” in Outremer allowed their women entirely too much independence and freedom.) The reality is that where a wife could not administer the estate, the trust form developed to efficiently administer an estate, including maintenance, farming, interactions with the king and other nobles, and so forth. These might include threats from “the state or rival noblemen” (the church did not and could not go around seizing land from absent knights), but those threats were not the main reason for trusts (and would exist whether the owner was absent or not). She also ascribes early legal authority over trusts to the ecclesiastical courts, whereas the secular Court of Chancery was the key player (part of the development of the separation of law and equity in the Common Law). None of this undercuts the rest of the book, but it’s a bit disconcerting to see bush league history errors, which Harrington probably got from the same kind of popular history that tells us that “rule of thumb” came from the size of the stick an Englishman was allowed to beat his wife with.

History errors are combined with economics errors and then exacerbated by the author’s credulity. We are told that wealth managers participate in elite, exclusive social activities, and through these obtain both new clients and non-public information. The example given is of a wealth manager who went bird shooting, and was able to alert his clients to a future increase in the cost of wheat, because at the shoot “we were told that the cost is going to go up 30 percent next year, because wheat [to feed the birds] is getting so expensive.” I’m no commodities trader, but I’m pretty sure that (a) what rich people idly say while shooting is not a good gauge for what global commodity prices, which fluctuate wildly, are going to be next week, much less next year and (b) if wheat is already expensive, as noted by the participants, that says exactly nothing about its future price. Similarly, Harrington says, analogizing to wealth managers, “A common story told by [London] junior lawyers is that wearing the right color socks and shoes is vital for success.” I wasn’t a lawyer in London, but I was an American big city lawyer, and that’s just laughable. The reader gets the impression that some of Harrington’s interviewees were trying to make her look foolish, and their success makes one wonder about their honesty in other matters.

Harrington makes other odd statements, too, like “the wealthy have made these service cuts [to Medicare and Social Security] a key political issue in the 2016 presidential campaign.” Nothing could be farther from the truth. No viable US politician running for President has EVER suggested cuts to those programs. Suggestions for cuts are confined to fringe players and professional economists (despite the undoubted need for such cuts). Then Harrington objects to wealth managers’ attempts to minimize taxes because “taxation provides the funding for public services such as schools and roads—[this] would seem tantamount to helping those states cut their own throats.” If Harrington thinks any significant amount of tax revenue in any country goes to schools and roads, perhaps she should stick to sociology. She ascribes the 2008 financial crisis to “bad debts and risks hidden from regulators in obscure offshore vehicles,” which is just wrong—the regulators knew all about the risks, and did nothing, and nobody alleges that the crisis had anything at all to do with offshore vehicles (that’s an Enron-era thing from nearly a decade before). Instead, the crisis was caused by domestic financial derivatives and a housing market corrupted by deliberate government action to distort the market for political gain.

Finally, Harrington bizarrely criticizes “philanthropic trusts and foundations that address social problems such as education and poverty.” You would think that would be desirable and cut against her argument that the rich harm the rest of us. You would be wrong. She believes we cannot allow the rich to be charitable, for when such private individuals dare to spend their money on charity, it is “without public accountability and often with mixed results.” How dare they spend to help others without subordinating themselves to the All-Mighty State! Leaving aside that both public accountability and good results are very, very rare in government programs addressing education and poverty, this betrays the usual unreflective statist mindset through which Harrington processes all her thoughts. That doesn’t make the book bad—but it could have been a lot better if she could have removed herself from that mindset, and truly examined the real impacts of the wealth management profession.

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4 Comments

  1. Anonymized Commenter Anonymized Commenter

    Charles, I really liked your review. Were you ever able to find any books that better served as a “How To” manual on wealth management?

    • Charles Charles

      Thank you. No, unfortunately not. As I mentioned in my review, I read an article on Harrington’s research, which led me to this book. What I didn’t mention was that article came out more than six months before the book, and I bookmarked it waiting for the book to be available–precisely for this reason, that there are zero books I know of that are focused on this area. I think someone who has the considerable wealth needed to be eligible for, and to be able to take effective use, wealth management strategies (roughly a minimum of $50 million, I’d guess) can only find out what those are by hiring someone to do the legwork. To a certain extent, that makes sense, because the strategies are always changing. Plus, the market for a “how-to” book targeted at truly rich people is probably pretty small!

  2. Anonymized Commenter Anonymized Commenter

    Dang, that sucks. A couple more questions, if you don’t mind:

    – You referred to Piketty as “largely discredited.” Where can I read about this? Like you did with Harrington’s book, I actually read the first few chapters of Piketty’s book for its practical uses rather than its policy prescriptions (i.e. if stock prices must inevitably grow at a faster rate than wages over the long term, then I should be an owner of stocks!), but I haven’t seen any good rebuttals to his argument (not that I’ve been looking very hard).

    – Since, as you discuss, wealth inequality is a bigger issue than income inequality, do you expect a wealth tax to ever be enacted in the United States?

    – Have you read “The Sovereign Individual”? It talks about some of the structural forces that are making what you call “exo-nationalism” more common, and I’m curious to hear your thoughts.

    – Do you have any book recommendations?

    I spent this afternoon reading some of your other reviews, and it is clear that you are a uniquely well-read and interesting person, with extreme coherence of thought and a rare willingness to question the conventional wisdom. I look forward to following your posts in the future.

    • Charles Charles

      Of course I’m happy to answer more questions! And thank you for the compliments.

      1) I must admit that I have not read Piketty, although I have a copy. This perhaps subjects me to criticism for over-reach, and to compound that, I must further admit that economics is not my strong suit. (I do have an economics concentration in a University of Chicago MBA, though!)

      By “discredited,” therefore, I mean not by me, certainly, but by various critics. Of course, it’s not like Piketty, or his defenders, think he’s discredited. He is not discredited in the sense that, for example, Michael Bellesiles’ “Arming America” is discredited–because it is fraudulent, and proven so, lock, stock, and barrel (no pun intended). But from my reading, I view Piketty as discredited for two reasons. (There is no book-length response that I am aware of, at least not yet. There are many shorter responses, such as by Richard Epstein.) First, much of Piketty’s analysis, and all of his nostrums, are the usual left-liberal economic ideas, warmed over, which have been repeatedly subjected, from Hayek on, to devastating attacks as violating first principles of economics and a ignoring human nature. All of these responses are ignored by Piketty, as seems to be usual for left-liberal economists. He conflates wealth and capital, for example. Of course, your mileage may vary on that constituting “discredited.” Second, Piketty has been repeatedly attacked for significant quantitative errors by people not ideologically opposed to him, such as Matthew Rognlie, as well as various forms of cherry picking. I am certainly not qualified to judge, even if I had read Piketty. But the degree of questioning seems pretty significant.

      2) Yes, I expect a wealth tax. In part, that would be for social reasons–to reduce inequality. Piketty is not wrong that it’s a problem, as I noted in my original review above. But as the government debt grows ever higher, a wealth tax will separately become required to meet debt obligations at some point. That latter tax would not be confined to the wealthy–as many have pointed, actually confiscating all the wealth of the top wealth holders in the United States would not have a significant impact on the debt. So the wealth tax will go farther down. (And a VAT, which will be sold as a replacement for the income tax, then layered on top of it.)

      This might not happen if the economy were to take off. When I wrote the review, that seemed unlikely. I am much more optimistic now. As a small business owner myself, I was surprised by how optimistic the results of the election made me. It’s not like it thrilled me beforehand. If businesspeople who are not crony capitalists feel optimistic, and are relieved of the crushing burdens of massive over-regulation and uncertainty, I predict a massive economic boom. We’ll see.

      3) I have not read “The Sovereign Individual.” Looks very interesting, though, so I have ordered a copy!

      4) I have very many book recommendations! My reviews are one place to start. But if you have a specific area in mind, I am happy to provide my thoughts.

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