Mitt Romney recently attacked Newt Gingrich for working as a lobbyist in Washington. The public being naturally suspicious of politicians who make money off of public service, Gingrich must offer slippery explanations of his lobbying income. Rick Santorum has the same problem.

Romney seems to stand apart, having made his $250 million fortune in the private sector. But Americans sense that his fortune is unlike those of Henry Ford and Steve Jobs, visionaries who created something from nothing. Corporate raiders may deserve remuneration for reallocating resources to their best use — but hundreds of millions? It is the scale that grates, and correctly so, for it was not value creation but government policy that made the industry so lucrative.

In the early 1960s, classical economics at the national policy level was replaced by the Keynesian consensus, which called for a program of constant inflation. One unintended consequence was the concentration of economic activity into large firms.

Firms grow in response to inflation for two reasons. First, inflation causes prices and interest rates to be unstable, making it difficult for private firms to plan. Companies amalgamate into conglomerates to allow management to make long-term operational and capital decisions that use internal resources and ignore the unstable prices. Second, modern governments print money by injecting new funds into the banking system. The banks in turn lend money to those clients that have a capacity to absorb extra financing in large increments — i.e., large firms.

As large firms grew in size, gaining tens of thousands of employees, they became difficult to manage. The consulting firm evolved to solve this problem. Teams of consultants investigate every level of a firm in order to give senior management the information required to dissolve internal fiefdoms and streamline operations.

When successful, consultants increase the capital value of the client. But consultants soon realized that instead of working for paltry fees, they could buy companies outright, reorganize them, and then resell them, thereby capturing all of the capital gain for themselves. Thus, in 1983, Bain Capital emerged from Bain Consulting.

These new private-equity firms were long on management theory but short on capital. They needed to borrow huge amounts of money to buy their targets. In fact, the private-equity firms did not borrow the money themselves; rather, the assets of the acquired firms served as collateral for the loans needed to pay the former owners. The banks, engorged with extra money printed by the Federal Reserve, were pleased to provide the capital. As private-equity firms flourished, the debt burden on American companies rose dramatically.

Americans are now familiar with how the housing market became intertwined with debt. As the Federal Reserve pushed interest rates lower over the past 30 years, a given amount of income could command an increasingly large mortgage, and that increased housing prices. As housing prices rose, the homeowners with the least equity made the largest gains as measured in percentage terms — further encouraging higher, and more reckless, debt levels.