Wither the Rentier Class?
Today’s read is an interview by the Saker of Michael Hudson, who the Saker refers to as “the best economist in the West”. We can quibble about politics and the economic fallout designed and approved of by the rentier class as they prepare their August meeting, but how often is it that we look to history and economic theory when trying to understand the present, and plan for the future?
Hudson’s voice in the debate rising about how to structure economies, in the face of the failure of the Soviet-style communism and the failure of “free market” capitalism to meet the needs of any but the elite, is a welcome respite to the usual left-right and neolibertarian-socialist views on economy. Throw in the debates over the so-called “free trade” agreements, and we have a global economy swirling down the drain into a 21st century economic version of the dark ages.
The missing item in today’s economic reforms is what classical economics focused on, from the French Physiocrats through Adam Smith, John Stuart Mill to Marx and his contemporaries: freeing industrial economies from the rentier carry-overs of European feudalism. The focus of classical value and price theory was to free economies from economic rent, defined as unearned income simply resulting from privilege: absentee land rent, mineral and natural resource rent, monopoly rent, and financial interest. The aim should be to prevent rent-extracting activities – defined as purely predatory transfer payments, an economically unproductive zero-sum activity.
The classical labor theory of value aimed at isolating those forms of income (land rent, monopoly rent and interest) that were socially unnecessary, and simply were legacies of past privilege. The halfway alternative was to tax land rent and monopoly rent (Henry George, et al.). The socialist alternative was to take natural rent-producing sectors into the public domain.
Europe did this with the major public utilities – transportation, communications, the post office, and also education, public health and pensions. The United States privatized these sectors, but created regulatory commissions to keep prices in line with basic cost-value. (To be sure, regulatory capture always was a problem, especially when it came to railroad charges…
Classical economics was a doctrine of how to industrialize and become more competitive – and at the same time, more fair – by bringing prices in line with actual, socially necessary costs of production. The resulting doctrine (with Marx and Thorstein Veblen being the last great classical economists) was largely a guide to what to avoid: special privilege, unearned income, unproductive overhead.
The aim was to create a circular flow model of national income distinguishing real wealth from mere overhead. The idea was to strip away what was unnecessary – what Marx called the “excrescences” of post-feudal society that remained embedded in the industrial economies of his day. When the great classical economists spoke of a “free market,” they meant a market free from rentier classes, free from monopolies and above all free from predatory bank credit.
Of course, we know now that Marx was too optimistic. He described the destiny of industrial capitalism as being to liberate economies from the rentiers. But World War I changed the momentum of Western civilization. The rentiers fought back – the Austrian School, von Mises and Hayek, fascism and the University of Chicago’s ideologues redefined “free markets” to mean markets free for rentiers, free from government taxation of land and natural resources, free from public price regulation and oversight. The Reform Era was called “the road to serfdom” – and in its place, the post-classical neoliberals promoted today’s road to debt peonage.
Today’s Cold War may be viewed in its intellectual aspects as an attempt to prevent countries outside of the United States from realizing that (contra Thatcher) there is an alternative, and acting on it. The struggle is for the economy’s brain and understanding on the part of governments. Only a strong government has the power to achieve the reforms at which 19th century reformers failed to achieve.
The alternative is what happened as Rome collapsed into serfdom and feudalism.