NOVEMBER 21, 2018, by Michael Hudson,
Today, the wealthy depict inequality in glowing colors as a byproduct of economies pulling ahead, “creating wealth” by innovations that add to prosperity. This view is unprecedented in history.
From antiquity to quite recently, personal accumulation of large amounts of wealth was frowned upon, because it usually was achieved at the expense of others. One party’s gain often tended to be at the expense of others, polarizing communities by pushing many below poverty levels.
The most corrosive method of gaining personal wealth, from the ancient world to today, is interest-bearing debt that mounts up with compound interest. The inability to pay has led small farmers and the poor to lose their property, homes, and ultimately their liberty as they become bond servants to pay their debts.
And since medieval times, the inability of governments to pay foreign bankers has forced them to privatize public infrastructure and other community assets, creating monopolies that enrich a creditor-investor overclass whose wealth was achieved by imposing austerity on the rest of society.
The overriding economic myth of today is that debts can and should be paid. But the reality is that the volume of debt tends to grow much more rapidly than an economy’s ability to pay. So in the end, debts that can’t be paid, won’t be.
The big question is, how won’t they be paid? Either the debts will be written down (as banks are often willing to do for corporations and commercial debt), or debtors will forfeit their property to foreclosing creditors. In the case of the latter, the creditors often use their expanded wealth to acquire yet more property, ultimately gaining control of government and dominion over the religious establishment as well.
Most of Jesus’s parables concerned debt, yet this has all but been written out of history today. It’s not what is taught in theological seminaries, and it has even been expunged from the Lord’s Prayer.
Historical documents from Sumer, Babylonia, Greece and Rome through Byzantium provide a solution. Rulers or civic authorities created countermeasures against this tendency in order to survive. Royal Clean Slate proclamations that canceled debts, liberated indebted bondservants, and returned land that had been forfeited to creditors or sold under duress (identical in wording to the Judaic Jubilee Year) saved societies from suffering population flight, defection to enemies, or domestic revolt.
Even though unequal, most archaic societies at least sought to keep their citizenry solvent so as to meet basic needs, enable citizens to pay taxes and serve in the military, and provide unpaid, corvée labor for public works. Clean Slates also prevented an independent oligarchy from emerging to rival the palace or rulers, and from blocking public rules to prevent or reverse predatory credit, land monopoly, and other corrosive behavior destabilizing economic balance.
But every society from Babylonia to Rome saw moneylending pass increasingly into private hands. As oligarchies emerged, their political aim was to unseat kings and prevent any public authority from proclaiming Clean Slates that would annul the debts their clients owed.
In the Bible, Luke 4 reports that in the very first sermon that Jesus gave when he returned to Nazareth, he went to the synagogue and unrolled the scroll of Isaiah to verse 61 and said that like Isaiah, he had been sent to preach the Year of the Lord (aka the Jubilee Year) to the poor. He proclaimed “freedom for the captives, release for the prisoners, and to proclaim the year of the Lord’s favor, deror (a Clean Slate).”
Most of Jesus’s parables concerned debt, yet this has all but been written out of history today. It’s not what is taught in theological seminaries, and it has even been expunged from the Lord’s Prayer (debt has been replaced with sin or trespasses).
The revolution that’s occurred in Assyriology today, however, shows how Babylonian Clean Slates were incorporated into the core of Judaism, and that Jesus fought to restore it against the Pharisees and other pro-creditor interests. Not surprisingly, almost everything about the contents of Bronze Age texts and the origins of Christianity is abhorrent to today’s vested creditor interests.
In 2018, most debts are owed to the richest 1 percent. They fight to block personal debt writedowns, as one can see in the case of student debt, junk mortgage debt, and personal bankruptcy. This is the cause of the economic austerity that is stifling new investment and consumption, which prevents economic growth instead of helping it.
My new book “…and forgive them their debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year,” describes how early societies dealt with such top-heavy debt overheads. The problem is universal in all eras, from antiquity to today’s world: debts tend to mount up faster than the ability to pay.
Debt was the great economic issue throughout antiquity, from Mosaic Law to Rome’s Struggle of the Orders between the indebted plebs vs. patrician creditors. From Babylonia through classical Greece, Rome, and Byzantium, and up until today, the tension between rulers (and governments) and creditor elites has caused a chronic political crisis.
The parallels today are obvious: The International Monetary Fund, European Central Bank, and emergency financial commissions are empowered to override elected democratic governments to transfer assets and income to bondholders and banks. In the wake of the 2008 financial crash, the U.S. Congress bailed out the banks, while millions of families lost their homes to foreclosure.
As history has amply demonstrated, all societies tend to polarize between creditors and debtors. But while this tendency is universal, it can and must be reversed for the sake of economic balance and indeed, our very survival.
Prof. Michael Hudson is a veteran of Wall Street and Distinguished Research Professor of Economics at the University of Missouri at Kansas City. His latest book is “…and forgive them their debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year.”
For the first time since the estate tax was enacted a century ago, rich American couples can pass $22 million to their children entirely free of federal taxes. Currently, over 150,000 American households hold that much or more wealth.
That will lock in runaway inter-generational wealth.
75 percent of household wealth and 97 percent of capital income—the kind of income generated by wealth, such as dividends, interest and capital gains—is concentrated in the top 10 percent of American households. According to another study, nearly half of American households couldn’t come up with $400 in an emergency to meet an unexpected expense, while a tiny slice of the population controls trillions of dollars in assets. It’s important to remember, too, that households of color are disproportionately on the low end of the wealth inequality spectrum; in 2016, white family wealth was seven times that of black families and five times that of Hispanic families.
If we want the United States to be a country that provides opportunity to all its citizens, then we need to rethink how Americans acquire wealth and develop policies that help more workers and families acquire and develop the assets they need to achieve stability in the long term. But what are the politically tenable ways to do that? Many founders believed in small government, reasonable taxes and broad-based property ownership, in part because they believed the latter could help ensure the first two. Unfortunately, this trilogy has fallen out of American political discussion.
- 47% of Democrats view capitalism positively, down from 56% in 2016
- 57% of Democrats now view socialism positively, little changed from 2010
- Republicans very positive about capitalism; 16% positive on socialism
Fewer Than Half of Young Americans View Capitalism Positively
Americans aged 18 to 29 are as positive about socialism (51%) as they are about capitalism (45%). This represents a 12-point decline in young adults’ positive views of capitalism in just the past two years and a marked shift since 2010, when 68% viewed it positively. Meanwhile, young people’s views of socialism have fluctuated somewhat from year to year, but the 51% with a positive view today is the same as in 2010.
Older Americans have been consistently more positive about capitalism than socialism. For those 50 and older, twice as many currently have a positive view of capitalism as of socialism.
28% of those over 65 have a positive view of socialism
As in the past, Americans are most positive about small business, entrepreneurs and free enterprise, and less so about big business. Views of the federal government are, along with views of socialism, the least positive of any of the seven concepts measured.
Americans’ positive views of several of the eight items tested are slightly less positive this year than in 2016, including a six-point drop in positive views of free enterprise.
Competition is the essence of capitalism, yet it is dying.
Rising market power by dominant firms has created less competition, lower investment in the real economy, lower productivity, less economic dynamism with fewer startups, higher prices for dominant firms, lower wages and more wealth inequality. The evidence from economic studies is pouring in like a flood.
If you believe in competitive free markets, you should be very concerned. If you believe in fair play and hate cronyism, you should be worried. With fake capitalism CEOs cozy up to regulators to get the kind of rules they want and donate to get the laws they desire. Larger companies get larger, while the small disappear, and the consumer and worker are left with no choice.
Freedom is essential to capitalism. It is not surprising then that Milton Friedman picked “Free to Choose” as the title of his extremely popular PBS series on capitalism, and “Capitalism and Freedom” was the title of his book that sold over 1.5 million copies. He argued that economic freedom was “a necessary condition for political freedom.”
“Free to Choose” sounds great. Yet Americans are not free to choose.
In industry after industry, they can only purchase from local monopolies or oligopolies that can tacitly collude. The U.S. now has many industries with only three or four competitors controlling entire markets. Since the early 1980s, market concentration has increased severely. We’ve already described the airline industry. Here are other examples:
- Two corporations control 90 percent of the beer Americans drink.
- Five banks control about half of the nation’s banking assets.
- Many states have health insurance markets where the top two insurers have an 80 percent to 90 percent market share. For example, in Alabama one company, Blue Cross Blue Shield, has an 84 percent market share and in Hawaii it has 65 percent market share.
- When it comes to high-speed Internet access, almost all markets are local monopolies; over 75 percent of households have no choice with only one provider.
- Four players control the entire U.S. beef market and have carved up the country.
- After two mergers this year, three companies will control 70 percent of the world’s pesticide market and 80 percent of the U.S. corn-seed market.
The list of industries with dominant players is endless. It gets even worse when you look at the world of technology. Laws are outdated to deal with the extreme winner-takes-all dynamics online. Google completely dominates internet searches with an almost 90 percent market share. Facebook has an almost 80 percent share of social networks. Both have a duopoly in advertising with no credible competition or regulation.
Amazon is crushing retailers and faces conflicts of interest as both the dominant e-commerce seller and the leading online platform for third-party sellers. It can determine what products can and cannot sell on its platform, and it competes with any customer that encounters success.
Apple’s iPhone and Google’s Android completely control the mobile app market in a duopoly, and they determine whether businesses can reach their customers and on what terms. Existing laws were not even written with digital platforms in mind.
So far, these platforms appear to be benign dictators, but they are dictators nonetheless.
It was not always like this. Without almost any public debate, industries have now become much more concentrated than they were 30 and even 40 years ago. As economist Gustavo Grullon has noted, the “nature of U.S. product markets has undergone a structural shift that has weakened competition.”
The federal government has done little to prevent this concentration, and in fact has done much to encourage it. Broken markets create broken politics. Economic and political power is becoming concentrated in the hands of distant monopolists.
The stronger companies become, the greater their stranglehold on regulators and legislators becomes via the political process. This is not the essence of capitalism.
Capitalism is a game where competitors play by rules on which everyone agrees. The government is the referee, and just as you need a referee and a set of agreed rules for a good basketball game, you need rules to promote competition in the economy.
Left to their own devices, firms will use any available means to crush their rivals. Today, the state, as referee, has not enforced rules that would increase competition, and through regulatory capture has created rules that limit competition.
Workers have helped create vast wealth for corporations, yet wages barely kept up with the growth in productivity and profits. The reason for the large gap is clear. Economic power has shifted into the hands of companies. Income and wealth inequality have increased as companies have captured more and more of the economic pie.
Most workers own no shares and have barely benefited from record corporate profits. As G.K. Chesterton observed, “Too much capitalism does not mean too many capitalists, but too few capitalists.”
When the left and right speak of capitalism today, they are telling stories about an imaginary state. The unbridled, competitive free markets that the right cherishes don’t exist today. The left attacks the grotesque capitalism we see today, as if that were the true manifestation of the essence of capitalism rather than the distorted version it has become.
In 1776 Adam Smith wrote “The Wealth of Nations,” and the American Continental Congress declared independence from Britain. Smith complained bitterly about monopolies. He wrote of the East India Company: “… the monopoly which our manufacturers have obtained … has so much increased the number of some particular tribes of them, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature.”
Among the reasons the Continental Congress cited for separating from Britain in the Declaration of Independence was, “For cutting off our Trade with all parts of the world: For imposing Taxes on us without our Consent.” The Boston Tea Party was in response to the East India Company’s monopoly on tea.
“The Wealth of Nations” and the Declaration of Independence were bold statements against the abuses of monopoly power. Americans wanted entrepreneurial freedom to build businesses in a free market.
Today, we need a new revolution to cast off monopolies and restore free trade.
(This is the first of two excerpts from “The Myth of Capitalism: Monopolies and the Death of Competition.”)