- Banking shares began to plunge Friday morning after Senator
Dodd, the Connecticut Democrat who is chairman of the banking committee,
said in an interview with Bloomberg Television that he was concerned the
government might end up nationalizing some lenders "at least for a
short time." Several other prominent policy makers including
Alan Greenspan, the former chairman of the Federal Reserve, and Senator
Lindsey Graham of South Carolina have echoed that view recently. (Eric
Dash, "Growing Worry on Rescue Takes a Toll on Banks," The
New York Times, February 20, 2009)
-
- How is it that Mr. Greenspan, free-market lobbyist for
Wall Street, recently announced that he favored nationalization of America's
banks and indeed, mainly the biggest and most powerful? Has he "gone
left"? Or are we dealing with the most recent exercise in Orwellian
doublethink?
-
- The answer is that the rhetoric of "free markets,"
"nationalization" and even "socialism" (as in "socializing
the losses") has been turned into the language of deception to help
the financial sector mobilize government power to support its own special
privileges. Having undermined the economy at large, Wall Street's public
relations think tanks are now dismantling the language itself.
-
- The popular media should not let them get away with it.
-
- Economic idealism from the left to the right wing of
the political spectrum advocates a free market. But what does this mean?
Is it what the classical economists advocated a market free from
monopoly power, business fraud, political insider dealing and special privileges
for vested interests a market protected by the rise in public regulation
from the Sherman Anti-Trust law of 1890 to the Glass-Steagall Act and other
New Deal legislation? Or is it a market free for predators to
exploit victims without public regulation or economic policemen the
kind of free-for-all market that the Federal Reserve and Security and Exchange
Commission (SEC) have created over the past decade or so? It seems incredible
that people should accept today's neoliberal idea of "market freedom"
in the sense of neutering government watchdogs, Alan Greenspan-style, letting
Angelo Mozilo at Countrywide, Hank Greenberg at AIG, Bernie Madoff, Citibank,
Bear Stearns and Lehman Brothers operate freely enough to plunge the economy
into crisis and then use Treasury bailout money to pay the highest salaries
and bonuses in U.S. history.
-
- Terms that are the antithesis of "free market"
also are being turned into the opposite of what they historically have
meant. Take today's discussions about nationalizing the banks. For over
a century nationalization has meant public takeover of monopolies or other
sectors to operate them in the public interest rather than leaving them
so special interests. But when neoliberals use the word "nationalization"
they mean a bailout, a government giveaway to the financial interests.
-
- We are dealing with an abuse of language of the kind
that George Orwell described in 1984, a degradation of the vocabulary to
mean the opposite of what it formerly meant in order to rewrite intellectual
and political history along lines that serve the currently dominant vested
interests: "The past was erased, the erasure was forgotten, the lie
became truth." Doublethink with regard to "nationalizing"
or "socializing" the banks and other sectors is a travesty of
political and economic discussion from the 17th through mid-20th centuries.
Society's basic grammar of thought, the vocabulary to discuss political
and economic topics, is being turned inside-out in an effort to ward off
discussion of the policy solutions posed by the classical economists and
political philosophers that made Western civilization "Western."
-
- Today's clash of civilization is not really with the
Orient; it is with our own past, with the Enlightenment itself and its
evolution into classical political economy and Progressive Era social reforms
aimed at freeing society from the surviving trammels of European feudalism.
What we are seeing is propaganda designed to deceive, to distract attention
from economic reality so as to promote the property and financial interests
from whose predatory grasp classical economists set out to free the world.
What is being attempted is nothing less than an attempt to destroy the
intellectual and moral edifice of what took Western civilization eight
centuries to develop, from the 12th century Schoolmen discussing Just
Price through 19th and 20th century classical economic value
theory.
-
- Any idea of "socialism from above," in the
sense of "socializing the risk," is old-fashioned oligarchy
kleptocratic statism from above. Real nationalization occurs when governments
act in the public interest to take over private property. The 19th-century
program to nationalize the land (it was the first plank of theCommunist
Manifesto) did not mean anything remotely like the government taking over
estates, paying off their mortgages at public expense and then giving it
back to the former landlords free and clear of encumbrances and taxes.
It meant taking the land and its rental income into the public domain,
and leasing it out at a user fee ranging from actual operating cost to
a subsidized rate or even freely as in the case of streets and roads.
-
- Nationalizing the banks along these lines would mean
that the government would supply the nation's credit needs. The Treasury
would become the source of new money, replacing commercial bank credit.
Presumably this credit would be lent out for economically and socially
productive purposes, not merely to inflate asset prices while loading down
households and business with debt as has occurred under today's commercial
bank lending policies.
-
- How Neoliberals falsify the West's political history
-
- The fact that today's neoliberals claim to be the intellectual
descendants of Adam Smith make it necessary to restore a more accurate
historical perspective. Their concept of "free markets" is the
antithesis of Smith's. It is the opposite of that of the classical political
economists down through John Stuart Mill, Karl Marx and the Progressive
Era reforms that sought to create markets free of extractive rentier claims
by special interests whose institutional power can be traced back to medieval
Europe and its age of military conquest.
-
- Economic writers from the 16th through 20th centuries
recognized that free markets required government oversight to prevent monopoly
pricing and other charges levied by special privilege. By contrast, today's
neoliberal ideologues are public relations advocates for vested interests
to depict a "free market" is one free of government regulation,
"free" of anti-trust protection, and even of protection against
fraud, as evidenced by the SEC's refusal to move against Madoff, Enron,
Citibank et al.). The neoliberal ideal of free markets is thus basically
that of a bank robber or embezzler, wishing for a world without police
so as to be sufficiently free to siphon off other peoples' money without
constraint.
-
- The Chicago Boys in Chile realized that markets free
for predatory finance and insider privatization could only be imposed at
gunpoint. These free-marketers closed down every economics department in
Chile, every social science department outside of the Catholic University
where the Chicago Boys held sway. Operation Condor arrested, exiled or
murdered tens of thousands of academics, intellectuals, labor leaders and
artists. Only by totalitarian control over the academic curriculum and
public media backed by an active secret police and army could "free
markets" neoliberal style be imposed. The resulting privatization
at gunpoint became an exercise in what Marx called "primitive accumulation"
seizure of the public domain by political elites backed by force.
It is a free market William-the-Conqueror or Yeltsin-kleptocrat style,
with property parceled out to the companions of the political or military
leader.
-
- All this was just the opposite of the kind of free markets
that Adam Smith had in mind when he warned that businessmen rarely get
together but to plot ways to fix markets to their advantage. This is not
a problem that troubled Mr. Greenspan or Mr. Bush. There really is no kinship
between their neoliberal ideals and those of the Enlightenment political
philosophers. For them to promote an idea of free markets as ones "free"
for political insiders to pry away the public domain for themselves is
to lower an intellectual Iron Curtain on the history of economic thought.
-
- The classical economists and American Progressives envisioned
markets free of economic rent and interest free of rentier overhead
charges and monopoly price gouging, free of land-rent, interest paid to
bankers and wealthy financial institutions, and free of taxes to support
an oligarchy. Governments were to base their tax systems on collecting
the "free lunch" of economic rent, headed by that of favorable
locations supplied by nature and given market value by public investment
in transportation and other infrastructure, not by the efforts of landlords
themselves.
-
- The argument between Progressive Era reformers, socialists,
anarchists and individualists thus turned on the political strategy of
how best to free markets from debt and rent. Where they differed was on
the best political means to achieve it, above all the role of the state.
There was broad agreement that the state was controlled by vested interests
inherited from feudal Europe's military conquests and the world that was
colonized by European military force. The political question at the turn
of the 20th century was whether peaceful democratic reform could overcome
the political and even military resistance wielded by the Old Regime using
violence to retain its "rights." The ensuing political revolutions
were grounded in the Enlightenment, in the legal philosophy of men such
as John Locke, political economists such as Adam Smith, John Stuart Mill
and Marx. Power was to be used to free markets from the predatory property
and financial systems inherited from feudalism. Markets were to be free
of privilege and free lunches, so that people would obtain income and wealth
only by their own labor and enterprise. This was the essence of the labor
theory of value and its complement, the concept of economic rent as the
excess of market price over socially necessary cost-value.
-
- Although we now know that markets and prices, rent and
interest, contractual formalities and nearly all the elements of economic
enterprise originated in the "mixed economies" of Mesopotamia
in the fourth millennium BC and continued throughout the mixed public/private
economies of classical antiquity, the discussion was so politically polarized
that the idea of a mixed economy with checks and balances received scant
attention a century ago.
-
- Individualists believed that all that shrinking central
governments would shrink the control mechanism by which the vested interests
extracted wealth without work or enterprise of their own. Socialists saw
that a strong government was needed to protect society from the attempts
of property and finance to use their gains to monopolize economic and political
power. Both ends of the political spectrum aimed at the same objective
to bring prices down to actual costs of production. The common aim
was to maximize economic efficiency so as to pass on the fruits of the
Industrial and Agricultural Revolutions to the population at large. This
required blocking the rentier class of interlopers from grabbing
the public domain and controlling the allocation of resources. Socialists
did not believe this could be done without taking the state's political
and legal power into their own hands. Marxists believed that a revolution
was necessary to reclaim property rent for the public domain, and to enable
governments to create their own credit rather than borrow at interest from
commercial bankers and wealthy bondholders. The aim was not to create a
bureaucracy but to free society from the surviving absentee ownership power
of the vested property and financial interests.
-
- All this history of economic thought has been as thoroughly
expunged from today's academic curriculum as it has from popular discussion.
Few people remember the great debate at the turn of the 20th century:
Would the world progress fairly quickly from Progressive Era reforms to
outright socialism public ownership of basic economic infrastructure,
natural monopolies (including the banking system) and the land itself (and
to Marxists, of industrial capital as well)? Or, could the liberal reformers
of the day individualists, land taxers, classical economists in the
tradition of Mill, and American institutionalists such as Simon Patten
retain capitalism's basic structure and private property ownership?
If they could do so, they recognized that it would have to be in the context
of regulating markets and introducing progressive taxation of wealth and
income. This was the alternative to outright "state" ownership.
Today's extreme "free market" idea is a dumbed-down caricature
of this position.
-
- All sides viewed the government as society's "brain,"
its forward planning organ. Given the complexity of modern technology,
humanity would shape its own evolution. Instead of evolution occurring
by "primitive accumulation," it could be planned deliberately.
Individualists countered that no human planner was sufficiently imaginative
to manage the complexity of markets, but endorsed the need to strip away
all forms of unearned income economic rent and the rise in land prices
that Mill called the "unearned increment." This involved government
regulation to shape markets. A "free market" was an active political
creation and required regulatory vigilance.
-
- As public relations advocates for the vested interests
and special rentier privilege, today's "neoliberal"
advocates of "free" markets seek to maximize economic rent
the free lunch of price in excess of cost-value, not to free markets from rentier charges.
So misleading a pedigree only could be achieved by outright suppression
of knowledge of what Locke, Smith and Mill really wrote. Attempts to regulate
"free markets" and limit monopoly pricing and privilege are conflated
with "socialism," even with Soviet-style bureaucracy. The aim
is to deter the analysis of what a "free market" really is: a
market free of unnecessary costs: monopoly rents, property rents and financial
charges for credit that governments can create freely.
-
- Political reform to bring market prices in line with
socially necessary cost-value was the great economic issue of the 19th century.
The labor theory of intrinsic cost-value found its counterpart in the theory
of economic rent: land rent, monopoly price gouging, interest and other
returns to special privilege that increased market prices purely by institutional
property claims. The discussion goes all the way back to the medieval Churchmen
defining Just Price. The doctrine originally was applied to the proper
fees that bankers could charge, and later was extended to land rent, then
to the monopolies that governments created and sold off to creditors in
an attempt to extricate themselves from debt.
-
- Reformists and more radical socialists alike sought to
free capitalism of its egregious inequities, above all its legacy from
Europe's Dark Age of military conquest when invading warlords seized lands
and imposed an absentee landlord class to receive the rental income, which
was used to finance wars of further land acquisition. As matters turned
out, hopes that industrial capitalism could reform itself along progressive
lines to purge itself of its legacy from feudalism have come crashing down.
World War I hit the global economy like a comet, pushing it into a new
trajectory and catalyzing its evolution into an unanticipated form of finance
capitalism.
-
- It was unanticipated largely because most reformers spent
so much effort advocating progressive policies that they neglected what
Thorstein Veblen called the vested interests. Their Counter-Enlightenment
is creating a world that would have been deemed a dystopia a century ago
something so pessimistic that no futurist dared depict a world run
by venal and corrupt bankers, protecting as their prime customers the monopolies,
real estate speculators and hedge funds whose economic rent, financial
gambling and asset-price inflation is turned into a flow of interest in
today's rentier economy. Instead of industrial capitalism increasing
capital formation we are seeing finance capitalism strip capital, and instead
of the promised world of leisure we are being drawn into one of debt peonage.
-
- The financial travesty of democracy
-
- The financial sector has redefined democracy by claiming
claims that the Federal Reserve must be "independent" from democratically
elected representatives, in order to act as the bank lobbyist in Washington.
This makes the financial sector exempt from the democratic political process,
despite the fact that today's economic planning is now centralized in the
banking system. The result is a regime of insider dealings and oligarchy
rule by the wealthy few.
-
- The economic fallacy at work is that bank credit is a
veritable factor of production, an almost Physiocratic source of fertility
without which growth could not occur. The reality is that the monopoly
right to create interest-bearing bank credit is a free transfer from society
to a privileged elite. The moral is that when we see a "factor of
production" that has no actual labor-cost of production, it is simply
an institutional privilege.
-
- So this brings us to the most recent debate about "nationalizing"
or "socializing" the banks. The Troubled Asset Relief Program
(TARP) so far has been used for the following uses that I think can be
truly deemed anti-social, not "socialist" in any form.
-
- By the end of last year, $20 billion was used to pay
bonuses and salaries to financial mismanagers, despite the plunge of their
banks into negative equity. And to protect their interests, these banks
continued to pay lobbying fees to persuade legislators to give them yet
more special privileges.
-
- While Citibank and other major institutions threatened
to bring the financial system crashing down by being "too big to fail,"
over $100 billion of TARP funds was used to make them even bigger. Already
teetering banks bought affiliates that had grown by making irresponsible
and outright fraudulent loans. Bank of America bought Angelo Mozilo's Countrywide
Financial and Merrill Lynch, while JP Morgan Chase bought Bear Stearns
and other big banks bought WaMu and Wachovia.
-
- Today's policy is to "rescue" these giant bank
conglomerates by enabling them to "earn" their way out of debt
by selling yet more debt to an already over-indebted U.S. economy.
The hope is to re-inflate real estate and other asset prices. But do we
really want to let banks "pay back taxpayers" by engaging in
yet more predatory financial practices vis-à-vis the economy at
large? It threatens to maximize the margin of market price over direct
costs of production, by building in higher financial charges. This is just
the opposite policy from trying to bring prices for housing and infrastructure
in line with technologically necessary costs. It certainly is not a policy
to make the U.S. economy more globally competitive.
-
- The Treasury's plan to "socialize" the banks,
insurance companies and other financial institutions is simply to step
in and take bad loans off their books, shifting the loss onto the public
sector. This is the antithesis of true nationalization or "socialization"
of the financial system. The banks and insurance companies quickly got
over their initial knee-jerk fear that a government bailout would occur
on terms that would wipe out their bad management, along with the stockholders
and bondholders who backed this bad management. The Treasury has assured
these mismanagers that "socialism" for them is a free gift. The
primacy of finance over the rest of the economy will be affirmed, leaving
management in place and giving stockholders a chance to recover by earning
more from the economy at large, with yet more tax favoritism.
(This means yet heavier taxes shifted onto consumers, raising their living
costs accordingly.)
-
-
- The bulk of wealth under capitalism as under feudalism
always has come primarily from the public domain, headed by the land
and formerly public utilities, capped most recently by the Treasury's debt-creating
power. In effect, the Treasury creates a new asset ($11 trillion of new
Treasury bonds and guarantees, e.g. the $5.2 trillion to Fannie and
Freddie). Interest on these bonds is to be paid by new levies on labor,
not on property. This is what is supposed to re-inflate housing, stock
and bond prices the money freed from property and corporate taxes
will be available to be capitalized into yet new loans.
-
- So the revenue hitherto paid as business taxes will still
be paid in the form of interest while the former taxes will
still be collected, but from labor. The fiscal-financial burden thus will
be doubled. This is not a program to make the economy more competitive
or raise living standards for most people. It is a program to polarize
the U.S. economy even further between finance, insurance and real estate
(FIRE) at the top and labor at the bottom.
-
- Neoliberal denunciations of public regulation and taxation
as "socialism" is really an attack on classical political economy
the "original" liberalism whose ideal was to free society
from the parasitic legacy of feudalism. A truly socialized Treasury
policy would be for banks to lend for productive purposes that contribute
to real economic growth, not merely to increase overhead and inflate asset
prices by enough to extract interest charges. Fiscal policy would aim to
minimize rather than maximizing the price of home ownership and doing business,
by basing the tax system on collecting the rent that is now being paid
out as interest. Shifting the tax burden off wages and profits onto rent
and interest was the core of classical political economy in the 18th and
19th centuries, as well as the Progressive Era and Social Democratic
reform movements in the United States and Europe prior to World War I.
But this doctrine and its reform program has been buried by the rhetorical
smokescreen organized by financial lobbyists seeking to muddy the ideological
waters sufficiently to mute popular opposition to today's power grab by
finance capital and monopoly capital. Their alternative to true nationalization
and socialization of finance is debt peonage, oligarchy and neo-feudalism.
They have called this program "free markets."
-
-
- © Copyright Michael Hudson,
- http://www.globalresearch.ca
- GlobalResearch.ca, 2009
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