Publication by Michael Hudson : Sage Journals
Abstract
Marx and many of his less radical contemporary reformers saw the historical role of industrial capitalism as being to clear away the legacy of feudalism—the landlords, bankers, and monopolists extracting economic rent without producing real value. However, that reform movement failed. Today, the finance, insurance, and real estate (FIRE) sector has regained control of government, creating neo-rentier economies.
The aim of this postindustrial finance capitalism is the opposite of industrial capitalism as known to nineteenth-century economists: it seeks wealth primarily through the extraction of economic rent, not industrial capital formation.
Tax favoritism for real estate, privatization of oil and mineral extraction, and banking and infrastructure monopolies add to the cost of living and doing business. Labor is increasingly exploited by bank debt, student debt, and credit card debt while housing and other prices are inflated on credit, leaving less income to spend on goods and services as economies suffer debt deflation.
Today’s new Cold War is a fight to internationalize this rentier capitalism by globally privatizing and financializing transportation, education, health care, prisons and policing, the post office and communications, and other sectors that formerly were kept in the public domain. In Western economies, such privatizations have reversed the drive of industrial capitalism. In addition to monopoly prices for privatized services, financial managers are cannibalizing industry by leveraging debt and high-dividend payouts to increase stock prices.
1. Introduction
2. Marx’s View of the Historical Destiny of Capitalism: To Free Economies from Feudalism
3. Capitalism’s Alliance of Banks with Industry to Promote Democratic Political Reform
4. The Banking Sector Lobbies against the Real Estate Sector, 1815–1846
5. The Alliance of Banking with Real Estate and Other Rent-Seeking Sectors
6. The Rentier Squeeze on Budgets: Debt Deflation as a Byproduct of Asset-Price Inflation
7. Finance Capital’s Fight to Privatize and Monopolize Public Infrastructure
8. Finance Capitalism Impoverishes Economies while Increasing Their Cost Structure
9. Today’s New Cold War Is a Fight by Finance Capitalism against Industrial Capitalism
10. Summary: Finance Capital as Rent-Seeking
11. Some Final Observations: Financial Takeover of Industry, Government, and Ideology
The power of private banks over government stems to a significant extent from government itself assisting private banks’ money creation activities – the assistance coming in the form of deposit insurance and bank bailouts . That’s about as daft as banks giving automatic weapons to criminals and then complaining when criminals use the weapons to rob banks
Under full reserve banking, in contrast, private banks get none of that assistance. Literature issued by private banks has to make clear that depositors can lose money if the bank is incompetent, except where bank accounts are 100% backed by reserves at the central bank. Another bonus is that it is plain impossible for banks to go bust because all loans are funded via equity: i.e. if a bank makes silly loans, all that happens is that the value of its shares decline. That bank does not actually go bust.
I would first like to thank Michael for sharing this enlightening article.
The following sentence from his article, “Postindustrial capitalism seeks wealth primarily through the extraction of economic rent, not industrial capital formation”, urges me to comment the following :
A clearer conceptual framework would be :
1. Two economic models :
— Capitalism (1) = Money that is invested becomes capital that generates Monetary profits = (M – C – M)
This model rests on the 13th century discovery in South-West Europe that “the reason at work in the transformation of money into capital” is “capitale” indeed…
— Financialization (2) = Debt pays for an Asset class that generates Monetary profits
(D – A – M)
2. Two different outcomes :
— Capitalism seeks to maximize profits through investment
— Financialization seeks to maximize profits by extracting rent.
These economic models are irreconcilable and in that sense theoretical clarity would be gained by opposing their different nature. In other words without capital there can be no capitalism.
Notes :
1. Capitalism can be understood in its commercial (Early-Modernity) as well as in its industrial form (High-Modernity).
In “Civilization and Capitalism”, volume 1 “The Structure of Everyday Life, Fernand Braudel, wrote that, in the commercial city-states of Italy and in the Champagne Fairs in the thirteenth century, capital meant the “money of a merchant” in the sense of being devoted to investment. It was called “Capital” or an utterly important dynamic form of money capable of expansion through investment in commerce, that was different from “simple” money which was considered to be sterile and only existing for facilitating commercial exchange”.
According to “Etymology Online” the word “capital” originates in : “…early 13c., ‘of or pertaining to the head,’ from Old French capital, from Latin capitalis ‘of the head,’ hence ‘capital, chief, first ”…
2. Financialization :
In the past capital had always been considered the investment of money resulting from the profits generated by commercial or industrial activities. But capital formation, through investment of profits, was too slow to possibly satisfy the ambitions, of Western big capital holders, to expand their reach to the whole earth. The template of the US financialization of the art-market, in the wake of the 2nd World War, offered a solution to detach investments from profits by engineering financial risk (paper instruments).
Thank you for posting this paper.
What an amazing article by Michael Hudson!
I always believed that Marx is not really applicable in these times of financial capitalism as he focused too much on the industrialists and not enough on the bankers…
There’s a really interesting historical intro, and Michael Hudson mentions reforms that failed. (But what were exactly these reforms?)
The article also has a great table comparing industrial capitalism with financial capitalism. This is one to be saved and printed!
I thought so too Serbian girl and just about fell over my fingers to get it up and posted for people to read!
It is so great that some appreciate it. I have a feeling that he will be following up on this one.
Thank you Amarynth!
This is most invaluable.
Perhaps there is a deeper zeitgeist behind the unleashing of Finance Capitalism? Like when a section of the elites win their argument and determine to plunder their own and bring down the QOL?
As in to implement Agenda 2030, which will focus heavily on western world.
It is very dark.
They are like vampire squids which destroy rather than build up a nation.
Reminds me of CAF comments that decisions were made in mid-1990s in US to take out the wealth and bring down middle-class communities through drugs (opioids), foreclosures and real estate bubbles.
She has also commented numerous times that this world in which we live could erase all poverty and achieve prosperity and decent QOL for all, but some force is vacuuming wealth everywhere on an epic scale.
A.H.H.
Taxes are not needed to fund anything that the US government wishes to put into practice. Income tax was a big scam engineered by the banksters at the same time as the privately owned federal reserve bank was created by the US Congress in 1913. All US money is created as interest bearing debt.
China creates its own domestic currency the yuan free of debt using the Chinese central bank, that is government owned. This is how they fund infrastructure, education and medical care.
The privately owned central banks cannot wait to get their blood sucking beaks into China, and that is why China is ringed by US military bases.
After reading Dr.Michael Hudson, it is impossible not to understand what is happening in this country regarding its political, economic, and societal arrangements. Dr. Hudson gives both clarity and understanding to the war being wage by the financial system against labor,middle class, and the small business in general.The examples given in this poignant article are very easy to comprehend. If someone does not see the obvious, is because he does not want to see. After analyzing the article, it would take a conscious effort not to know.
Excellent article. It is very insightful and straight to the point. Thanks.
The article is simply a bullseye. Many economists get lost in detail, but here is what really matters. Constantly generating money and credit benefits those doing it, of course, to the great detriment of the whole economy and society. Who falsifies the money, gets a prison sentence, but when the central bank does it, it is called monetary policy.