by Ismael
Hossein-Zadeh – Anthony A. Gabb
Under the
feudal mode of production, peasants were often allowed to cultivate
plots of land for themselves on a rental basis. However, those tenant
farmers rarely succeeded in becoming landowners in their own rights
because a major share of what they harvested was taken away by
landlords as rent, often leaving them with a bare subsistence amount
of what they produced. When the harvest was poor, they incurred debt.
If peasants were unable to pay off their debts, they could find
themselves reduced to the condition of serfs or slaves.
Today, under
conditions of market dominance by parasitic finance capital, a
similar relationship can be detected between the powerful financial
oligarchs (as feudal lords of our time), on the one hand, and the
public at large (as peasant population of today), on the other. In
the same manner as the landed aristocracy of times past extracted
rent by virtue of monopolistic ownership of land, so today the
financial oligarchy extracts interest and other financial charges by
virtue of having concentrated the major bulk of national resources in
their hands in the form of finance capital.
The Marxist
term wage-slaves refers to those who, lacking capital or means of
production, have only their labor power to sell to make a living.
This describes the vast majority of people in today’s capitalist
societies whose sole means of subsistence is the sale of their
capacity to work. “Just as the feudal-era serf had no choice but to
enslave himself and his family to the manor-house lord, the
modern-day serf must indenture himself to banks to own a car or home
or buy a college education”.
In the
latest edition of her book, Occupy Money, Professor Margrit Kennedy
shows that today between 35 percent and 40 percent of all consumer
spending is appropriated by the financial sector: bankers, insurance
companies, non-bank lenders/financiers, bondholders, and the like.
Obviously, this means that, as Ellen Brown points out: “By
taking banking back . . . governments could regain control of that
very large slice (up to 40 per cent) of every public budget that
currently goes to interest charged to finance investment programs
through the private sector”.
Distribution
Effects: Escalation of Poverty and Inequality
Like the
feudal rent, the hidden tribute to the financial sector, the nearly
40 percent of consumer spending that is appropriated by the financial
sector, helps explain how wealth is systematically transferred from
Main Street to Wall Street. The rich get increasingly richer at the
expense of the poor—not just because of greed or the blind forces
of the market mechanism but, more importantly, because of deliberate
monetary/economic policies, which have steadily come under effective
control of the financial oligarchy. Indeed, the very mechanism of
money creation and/or monetary policy itself exacerbates inequality.
Although
obfuscated and/or mystified, the planned or premeditated mechanism by
which redistribution of economic resources from the bottom to the top
takes place is fairly straightforward. The insidious mechanism of
redistribution in favor of the financial oligarchy is expertly
sanitized and benignly called monetary policy. Private central banks
(such as the Federal Reserve Bank in the U.S.) are usually the main
institutional vehicles that carry out the monetary policy of
redistribution. Central banks’ polices of cheap or easy money
benefits, first and foremost, the big banks and other major financial
players that can outbid small borrowers who must borrow at much
higher rates than the near-zero rates guaranteed to the big
borrowers.
By thus
gaining privileged access to nearly interest-free money, the
financial elites can enrich themselves in a number of ways. For one
thing, they can snap-up income-producing assets at the expense of
small borrowers who lack access to cheap money. For another, they can
boost the value of their wealth by creating an artificial demand
(such as stock buybacks) for those ill-begotten assets with the
cheaply borrowed money. In addition, they can skim vast wealth by
loaning out the cheap they obtain from central banks to everyone
below the top of the wealth/income pyramid—at near four percent
(mortgages), at seven or eight percent (auto, student and other
loans), and above 15 percent (credit cards). Obviously, this would
funnel much of the national income stream to those who can borrow
cheap and lend at much higher rate.
Instead of
regulating or containing the disruptive speculative activities of the
financial sector, economic policy makers, spearheaded by central
banks, have in recent years been actively promoting asset-price
bubbles—in effect, further exacerbating inequality.
Proxies of
the financial oligarchy at the helm of monetary/economic policy
making apparatus seem to believe that they have discovered an
insurance policy for bubbles that burst by blowing new ones:
“Both
the Washington regulators and Wall Street evidently believed that
together they could manage bursts. This meant that there was no need
to prevent such bubbles from occurring: on the contrary, it is
patently obvious that both regulators and operators actively
generated them, no doubt believing that one of the ways of managing
bursts was to blow another dynamic bubble in another sector: after
dot-com, the housing bubble; after that, an energy-price or emerging
market bubble, and so on”.
It is
obvious that this policy of effectively insuring financial bubbles
would make financial speculation a win-win proposition, a proposition
that is aptly called “moral hazard,” as it encourages risk-taking
at the expense of others—in this case of the 99%, since the costs
of bailing out the “too-big-to-fail” gamblers are paid through
austerity cuts. Knowing that the central bank/monetary policy would
bail them out after any bust, they go from one excess to another.
This shows
how the proxies of the financial oligarchy, ensconced at the helm of
central banks and their shareholders (commercial banks), serve as
agents of subtlely funneling economic resources from the public to
the financial oligarchy—just as did the rent/tax collectors and
bailiffs of feudal lords collected and transferred economic surplus
from the peasants/serfs to the landed aristocracy.
Contractionary
or Anti-developmental Nature of Parasitic Finance Capital
As mentioned
earlier, today between 35 percent and 40 percent of all consumer
spending is appropriated by the financial sector. Not only does this
redistribute resources in favor of the financial oligarchy, it also
drains the real sector of the economy of the necessary resources for
productive investment and economic development.
Experience
shows that, contrary to the extractive or parasitic private banking,
public banking has proven quite beneficial to the developmental
objectives of their communities and/or nations. Nineteenth century
neighborhood savings banks, Credit Unions, and Savings and Loan
associations in the United States, Jusen companies in Japan, Trustee
Savings banks in the UK, and the Commonwealth Bank of Australia all
served the housing and other credit needs of their communities well.
Perhaps a
most interesting and instructive example is the case of the Bank of
North Dakota, which continues to be owned by the state for nearly a
century, and which is widely credited for the state’s relatively
healthy budget and its robust economy in the midst of budgetary
problems and economic stagnation in many other states. The bank was
established by the state legislature in 1919, specifically to free
farmers and small business owners from the clutches of out-of-state
bankers and railroad barons. The bank’s mission continues to be to
deliver sensible financial services that promote agriculture,
commerce and industry in North Dakota.
Explaining
how the Bank of North Dakota utilizes people’s savings for
productive credit and/or investment, Eric Hardmeyer, president of the
bank, points out, “Really what separates us [from private banks]
is that we plow those deposits back into the state of North Dakota in
the form of loans. We invest back into the state in economic
development type activities.” The bank president further
indicates that in the course of the last dozen years or so “we’ve
turned back a third of a billion dollars just to the general fund to
offset taxes or to aid in funding public sector types of needs”.
Contrary to
the case of North Dakota, most other states, burned by interest
payments and other financial obligations to private banks, are forced
to cut investment on public capital formation, to slash jobs and
liquidate state-owned properties or state-sponsored services—often
at fire-sale prices. Consider California, for example. At the end of
2010, it owed private banks and other bondholders $70 billion in
interest only—44% of its total financial obligations of $158
billion. “If the state had incurred that debt to its own bank,”
writes Ellen Brown, “California could be $70 billion richer
today. Instead of slashing services, selling off public assets, and
laying off employees, it could be adding services and repairing its
decaying infrastructure”.
At the
national level, the U.S. federal government paid in 2011 a sum of
$454 billion in interest on its debt—the third highest budget item
after the military and Social Security outlays. This figure amounted
to nearly one-third of the total personal income taxes ($1, 100
billion) collected that year. This means that if the Federal
Reserve Bank was publicly owned, and the government borrowed directly
from it interest-free, personal income taxes could have been cut by a
third. Alternatively, the savings could be invested in social
infrastructure, both human and physical, thereby drastically
augmenting the productive capacity of the nation and elevating the
standard of living for all.
It can
reasonably be argued that the ravages wrought on today’s
economies/societies by parasitic finance capital’s extraction of
economic resources are even more destructive than was the extraction
of feudal rent to the social fabric under feudalism. There are at
least two major reasons for this judgment.
For one
thing, the landed aristocracies’ appropriation of the major bulk of
economic surplus, or rent, required production and, therefore,
employment of the farming labor force. This meant that although the
farming workforce was, of course, exploited, it nonetheless
benefitted from production—albeit at poverty or subsistence levels
of remuneration. In the age of finance capital, however, profit
making or surplus extraction by the parasitic financial oligarchy is
largely divorced from real production and employment, as it comes
largely through parasitic appropriation from the rest of the economy.
As such, it employs no or a very small percentage of labor force,
which means that, today, the financial sector generates
income/profits without sharing it with the overwhelming majority of
the public.
For another,
whereas periodic cancellation of unsustainable peasants’ debts by
landed aristocracies were considered as restorative measures for
maintaining the feudal mode of production and social structure, under
today’s rule of finance capital such healing measures are ruled out
as omens of economic catastrophe. Historical records show that debt
cancellation in the Bronze Age Mesopotamia took place on a fairly
regular basis from 2400 to 1400 BC. Ancient documents decoded from
cuneiform inscriptions have led many historians to believe that the
Bronze Age tradition of debt cancellation in the Near/Middle East may
have served as the setting or model for the Biblical pronouncements
of debt relief.
Careful
studies of those records indicate that, contrary to today’s
perceptions (shaped largely by the influential financial interests)
that debt cancellation may lead to economic disorder, as epitomized
by the too-big-to-fail refrain, those earlier practices of debt
relief were carried out precisely for the opposite reasons: to
restore economic revival and social harmony by undoing the ravages of
debt wrought on the economy and the overwhelming majority of the
population. Freedom in those days meant real, economic
freedom—freedom from debt bondage—not the abstract or hollow
concept of freedom promoted today.
“The
type of economic freedom being referred to was the royal act of
cancelling back taxes and other personal debts, restoring traditional
family landholding rights and freeing citizens who had been enslaved
for debt. These royal interventions ensured rather than encroached on
general economic freedom”.
What is
to be Done?
Many critics
of parasitic finance capital have called for a robust regime of
regulation of the financial sector. Experience shows, however, that
as long as the dynamics and structures of the accumulation of capital
are left intact, regulation cannot provide an effective long-term
solution to the recurring crises of financial bubble and bursts.
For one
thing, due to the political influence of powerful financial
interests, financial regulations would not be implemented in a
meaningful way, as evinced, for example, by policy responses to the
2008 financial implosion and the ensuing Great Recession.
For another,
even if regulations are somehow implemented, they would provide only
a temporary relief. For, as long as there is no community or real
democratic control, regulations would be undermined by the
influential financial interests that elect and control policy-makers.
The dramatic reversal of the extensive regulations of the 1930s and
1940s that were put in place in response to the Great Depression and
World War II to today’s equally dramatic deregulations serves as a
robust validation of this judgment. This means that the need to end
the recurring crises of the capitalist system requires more than
financial regulation; it calls for changing the system itself.
Other
critics of parasitic finance capital have called for public banking.
The idea of bringing the banking industry, national savings and
credit allocation under public control or supervision is neither
complicated nor necessarily socialistic or ideological. In the same
manner that many infrastructural facilities such as public roads,
school systems and health facilities are provided and operated as
essential public services, so can the supply of credit and financial
services be provided on a basic public utility model for both
day-to-day business transactions and long-term industrial projects.
As pointed
out earlier, provision of financial services and/or credit facilities
after the model of public utilities would lower financial costs to
both consumers and producers by about 35 to 40 percent. By thus
freeing consumers and producers from what can properly be called the
financial overhead, or rent, similar to land rent under feudalism,
the public option credit and/or banking system can revive many
stagnant economies that are depressed under the crushing burden of
never-ending debt-servicing obligations.
Even in the
core capitalist countries public banking has occasionally been used
to save capitalism from its own systemic crises. For example, in the
face of the Great Depression of the 1930s, and following the Hoover
administration’s unsuccessful policy of trying to bailout the
insolvent banks, the F.D.R. administration was compelled to declare a
“bank holiday” in 1933, pull the plug on the terminally-ill banks
and take control of the entire financial system. The Emergency
Banking Act of 1933, introduced by President Roosevelt (four days
after he declared a nationwide bank holiday on March 5, 1933) and
passed by Congress on March 9th, guaranteed full payment of
depositors’ money, thereby effectively created 100 percent deposit
insurance. Not surprisingly, when the banks reopened for business on
March 13, 1933, “depositors stood in line to return their
stashed cash to neighborhood banks”.
Similarly,
in the face of the collapse of its banking system in the early 1992,
the Swedish state assumed ownership and control of all the insolvent
banks in an effort to revive its financial system and prevent it from
bringing down its entire economy. While this wiped out the existing
shareholders, it turned out to be a good deal for taxpayers: not only
did it avoid costly redistributive bailouts in favor of the insolvent
banks, it also brought taxpayers some benefits once banks returned to
profitability.
Both in
Sweden and the United States once profitability was returned to
insolvent banks their ownership was returned to private hands! It is
perhaps this kind of capitalist governments’ commitment to powerful
financial–corporate interests that has prompted a number of critics
to argue that one definition of capitalism is that it is a system of
socializing losses and privatizing profits.
In the
absence of incestuous business–political relationship between Wall
Street and the government apparatus, nationalization of banks and
other financial intermediaries is not as complicated or difficult as
it may sound; since banking laws already empower regulators to impose
extraordinary controls and close supervision over these institutions.
It is certainly easier than public ownership and management of
manufacturing enterprises that require much more than record keeping
and following regulatory or legal guidelines.
Indeed, in
the immediate aftermath of the 2008 financial implosion, the U.S. and
British governments became de facto owners of the failed financial
giants such as Citibank, A.I.G, the Royal Bank of Scotland, and
Anglo-Irish Bank. Through the provision of enormous amounts of public
funds, these governments effectively became the main investors in the
collapsed institutions. Were it not because of political and/or
ideological reasons, they could have easily made their de facto
ownership legal ownership.
The
fraudulent compensation of Wall Street’s gambling losses at the
expense of everyone else is testament, once again, to the demagogical
pretentions of the champions of austerity and neoliberalism that the
government should stay out of the market’s affairs.
While public
banking could certainly mitigate or do away with market turbulences
that are due to financial bubbles and bursts, it will not preclude
other systemic crises of capitalism. These include profitability
crises that could result from very high levels of capitalization,
from insufficient demand or under-consumption, from overcapacity or
overproduction, or from disproportionality between various sectors of
a market economy. To do away with the systemic crises of
capitalism, therefore, requires more than nationalization of banks;
it requires changing the capitalist system itself.
Source
and references:
Related:
Comments
Post a Comment