Are the Silicon Valley fraudsters today's robber barons?

Will Silicon Valley go down in history the way of the robber barons? There's been plenty of raw material in the headlines for a sharp downgrading of the San Francisco Bay Area tech industry's reputation these last few weeks.

Consider what Twitter's owner Elon Musk has been revealing about how the people who ran old Twitter did business. As the documents he's been uncovering have revealed, Twitter leaders lied repeatedly and shamelessly about how they systematically concealed politically inconvenient information, from leading epidemiologists' arguments against lockdowns to New York Post stories on Hunter Biden's laptop.

Twitter officials denied that they were "shadow-banning" even while actively engaged in "visibility filtering" — pretty much the same thing. From their stronghold headquarters on San Francisco's Market Street, they sought to impose the values and voting preferences of the Bay Area (76% to 22% Biden in 2020) on the rest of the country.

The second story is the sentencing of Elizabeth Holmes, former CEO of the Silicon Valley-based blood-testing startup Theranos, to 11 years in prison earlier this month. A Stanford dropout, Holmes assembled an all-star cast of directors and backers and, in her trademark black turtlenecks, was hailed as the second Steve Jobs. Instead, federal prosecutors said, she was perpetrating a "massive fraud."

Twitter's censorship and Theranos' cover-up were already well known. More startling was the third Silicon Valley-related scandal, the sudden collapse of the cryptocurrency derivatives exchange FTX on Nov. 11 and the indictment this week of its ousted 30-year-old CEO, Sam Bankman-Fried, for "massive, yearslong" fraud.

SBF, as he was often called, was a "woke capitalist," dressed in baggy T-shirts and shorts, playing video games during interviews, he celebrated himself as a practitioner of "effective altruism." He was reputed to be the second-argest contributor ($40 million) to Democrats in the 2022 campaign cycle. At a House Financial Services Committee hearing, Chairwoman Maxine Waters blew him a kiss.

SBF was headquartered in the Bahamas, but by inheritance, he is Silicon Valley royalty: the son of two professors at Stanford Law School. Their prominence helped him gain positive publicity and investor acceptance, and they have been loyally standing by him. So, apparently, have a lot of fans that he received a round of applause at an early December New York Times conference.

Bankman-Fried's gaudy success evidently gave him the confidence to submit earlier to an interview, surely contrary to legal advice, with a New York Times reporter and to agree to give congressional testimony this week, until the government's perhaps conveniently timed indictment spared him from potentially damaging admissions.

Are these Silicon Valley scammers the second coming of the robber barons? Maybe, but you should remember that the so-called robber barons were christened and criticized by turn-of-the-century muckrakers with axes to grind and 20th-century Marxists who regarded all capitalists as criminals.

While some business titans of yore profited from frauds, most benefited society by transforming great technological advances — the greatest ever, tech historian Vaclav Smil argues in his book, Creating the Twentieth Century: Technical Innovations of 1867-1914 and Their Lasting Impact — into workable industrial processes producing goods and services of near-universal benefit.

Andrew Carnegie's steel built civil and transportation infrastructure. John D. Rockefeller's kerosene saved the whales, and his gasoline fueled the auto revolution. J. P. Morgan's financing created the industrial might that Alan Greenspan would later hyperbolically claim won World War II.

They didn't amass fortunes by robbing people. And indeed, they gave back, too. Carnegie's libraries helped educate generations; Rockefeller created modern research hospitals; Morgan set an example of fine arts connoisseurship. Silicon Valley's billionaires have yet to match these examples.

Their rise does have something in common with that of their pre-1914 predecessors. In The Power Law, his recent account of Silicon Valley venture capital firms, Sebastian Mallaby describes how VC pioneer Arthur Rock, in choosing which ventures to finance, relied primarily not on business plans but on personal character. "When I talk to entrepreneurs," he quotes Rock as saying, "I'm evaluating not only their motivation but also their character, fiber."

Similarly, in his testimony before a House committee in 1912, Morgan asserted that investing in an enterprise depended, as one historian summarized, "not on any material substance of system of accounting, but on the character of the borrower and lender."

Relying on character evidently makes sense in a time of rapid technological change for investors looking not for safety but for bonanza profits. But judgments of character are fallible and, as innovation ripens into fashion, can be swayed by moralistic appeals. Old Twitter's proprietors claimed to be protecting fashionable minorities; Holmes claimed to be lessening pain for the afflicted; Bankman-Fried, while playing video games, said he was making money to save the planet.

These fraudsters don't entirely discredit Silicon Valley's genuine successes. But they suggest that its best days are past, and meanwhile, its leaders have yet to match the achievements of the robber barons.