[DEBATE] : (Fwd) Michael Hudson on 'nationalisation'

[Dominic Tweedie]

This is an excellent article.

He is right to talk of "neo-feudalism". That is the truth

He is also right to imply that this "global economic meltdown" i


2009/2/24 Patrick Bond <pbond at mail.ngo.za>

> www.counterpunch.org
>
> What "Nationalize the Banks" and the "Free Market" Really Mean in
> Today's Looking-Glass World
> The Language of Looting
>
> By MICHAEL HUDSON
>
> "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 Alan 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 the old disciple
> of Ayn Rand gone Red in the night? Surely not.
>
> 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.
>
> Exactly what does “a free market” 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 loot
> without hindrance or sanction, 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.
>
> Doublethink and doubletalk 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 the Communist 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 the editorial writers of the New
> York Times and Washington Post. 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.”
>
> Michael Hudson is a former Wall Street economist. A Distinguished
> Research Professor at University of Missouri, Kansas City (UMKC), he is
> the author of many books, including Super Imperialism: The Economic
> Strategy of American Empire (new ed., Pluto Press, 2002) He can be
> reached via his website, mh at michael-hudson.com
>
>
>
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