Adding this regressive fiscal burden to the debt overhead has left only one way for the economy to survive without cutting back consumption levels: to borrow from banks to buy what wages and salaries no longer are sustaining. So more debt seems to be the only solution to today’s over-indebtedness. That is the inner financial contradiction of our post-bubble economy.
Financial and debt reform will still leave labor and environmental problems
It is easy to forget how optimistic Marx and other socialists of his day were about the future of industrial capitalism. He expected the industrial mode of production to emerge victorious over all forms of parasitic rentier activities. Enlightened class consciousness and political democracy were expected to usher in a world of rising living standards, better working conditions and less unfair distribution of income.
Like most evolutionary economic forecasters of his day, Marx expected industrial capitalism to free itself from the “excrescences” of landlordism, monopolies and other forms of exploitation. But the banking and landlord class that were mutual enemies in Ricardo’s day have joined forces since World War I. As this has occurred, Social Democratic and Labour parties abandoned the issue of land rent to the Liberals and Single Taxers (whose ranks dwindled rapidly). And despite an early 20th -century focus on finance capitalism by Rudolf Hilferding, Lenin and other Marxists, monetary and debt analysis has been left mainly to right wing bank advocates, from followers of Ludwig von Mises to Chicago-type monetarists.
In the early 20th century the fight between employers and labor was expected to be the major tension shaping future politics. But today, Labor is fighting simply for jobs, seeing a harmony of interest with employers in place of the class conflict of a century ago — and imagining that finance helps industrial hiring rather than downsizing and out-sourcing it.
Housing has become more widely distributed, public pensions and health care have at least been promised, and a new world of opportunities has opened up. But the democratization of homeownership has enabled lobbyists for large commercial and rental property owners to make untaxing real estate a seemingly democratic aim. This demagogy reached its pinnacle in California’s notorious Proposition 13, which froze taxes on commercial and rental properties as well as homes.
Coupled with other tax favoritism for real estate and finance, the result has been a sharply regressive tax shift enabling financial power to grow stronger than industrial power. Industry is being financialized more than finance has become industrialized. The remedy is to write down debts and reform the tax system. Our financial problem is like a parasite on a sick body. The host needs to get rid of the intruder before it can heal itself.
Downsizing finance will not, in itself, avert the threatened privatization of the post office, water systems, roads and communication, or cure the high cost of privatized medical insurance and other infrastructure. Once you remove the debt drain and rentier burden from industrial capitalism will still leave the familiar old class tensions between employers and their workers. This will still leave the familiar labor problems of industrial capitalism — the fight to provide fair working conditions and basic necessities to all citizens, as well as to avoid war, environmental pollution and other social strains.
However, the rise of financial power is working against all these objectives, preventing society from healing itself. As Alan Greenspan noted in the passages cited earlier, hooking “traumatized labor” on the debt treadmill is a major factor deterring workers from pressing for wage increases and better workplace conditions. Without resolving the debt overhead and providing a public option for banking services, the other problems are made much worse.
Ancient mythology asked how King Midas could survive with nothing to eat but his gold. This threatens to be a metaphor for today’s finance capitalism — a dream that one can live purely off money, without means of production and living labor. To avoid this fate, the remedy must add financial reform to the 19th century’s unfinished revolution to sweep away the surviving inequities of post-feudal land grabbing, seizure of the Commons and creation of monopoly privileges. These are the vestiges of the past appropriations and insider dealing that underlie rent seeking and endowed a financial system that remains grounded in neofeudal practice instead of investing in industry and human well being.
29. The Fight for the 21st Century
If Europe wants the division and the perpetuation of servitude, we will take the plunge and issue a “big no.” We will fight for the dignity of the people and our sovereignty.
In 1933, as the wake of World War I’s financial wreckage gave way to the Great Depression, the philosopher H. G. Wells wrote a novel about the conflict he expected to emerge by the last quarter of his century. Reminding his readers of the “perennial struggle of life against the creditor and the dead hand,” he described society’s “forward effort” seeking to break free of past debts and financial claims. Viewing debt as a retarding force, Wells forecast that matters would come to a head in the year 1979 when his fictional character Austin Livewright would publish Bankruptcy Through the Ages. “We need only refer the student to the recorded struggles in the histories of Republican Rome and Judaea between debtor and creditor; to the plebeian Secessions of the former and the year of Jubilee of the latter.” The year 1979 indeed turned out to be precisely when interest rates peaked at a modern-era high of 20 percent.
As an example of the parallel struggle against landowners seeking to avoid taxes, Wells cited England’s Statutes of Mortmain (1279 and 1290) protecting the land from passing to the Church via bequest, foreclosure or sales made to avoid the epoch’s feudal duties. Throughout history there has been a constant tension between royal or public authority, and creditors or wealthy patrons seeking to indebt the land and its population to themselves so as to replace public power with their own. But whereas the great political fight of the 19th century was to nationalize or tax land and natural resource rents, today’s fight must be to socialize banking and finance, which have become the ultimate recipient and hence main defender of such rents.
The actual financial crisis of 1979 was resolved in a way that led in the opposite direction from what Wells had forecast and progressive economists recommended. Instead of debtors achieving a clean slate to wipe out the debt overhead, the incoming 1981-92 Reagan-Bush administration sponsored a wave of new credit/debt, so large that interest rates declined steadily during the 1980s.
At first, this debt creation was used to inflate property and stock markets. Whereas the Vietnam War and ensuing Carter inflation (1977-80) had bid up wages and commodity prices, the subsequent neoliberal inflation bid up asset prices, reinforced by tax cuts on real estate, capital gains and the upper income brackets. This shift to regressive taxation was the reverse of what economists and futurists had expected. Instead of economies becoming more equal, they polarized increasingly between creditors and debtors.