By the mid-1990s a more realistic modern financial theory was being developed by Hyman Minsky and his associates, first at the Levy Institute at Bard College and later at the University of Missouri at Kansas City (UMKC). I became a research associate at Levy writing on real estate and finance, and soon joined Randy Wray, Stephanie Kelton and others who were invited to set up an economics curriculum in Modern Monetary Theory (MMT) at UMKC. For the past twenty years our aim has been to show the steps needed to avoid the unemployment and vast transfer of property from debtors to creditors that is tearing economies apart today.
I presented my basic financial model in Kansas City in 2004, with a chart that I repeated in my May 2006 cover story for Harper’s. The Financial Times reproduced the chart in crediting me as being one of the eight economists to forecast the 2008 crash. But my aim was not merely to predict it. Everyone except economists saw it coming. My chart explained the exponential financial dynamics that make crashes inevitable. I subsequently wrote a series of op-eds for the Financial Times dealing with Latvia and Iceland as dress rehearsals for the rest of Europe and the United States.
The disabling force of debt was recognized more clearly in the 18th and 19th centuries (not to mention four thousand years ago in the Bronze Age). This has led pro-creditor economists to exclude the history of economic thought from the curriculum. Mainstream economics has become censorially pro-creditor, pro-austerity (that is, anti-labor) and anti-government (except for insisting on the need for taxpayer bailouts of the largest banks and savers). Yet it has captured Congressional policy, universities and the mass media to broadcast a false map of how economies work. So most people see reality as it is written — and distorted — by the One Percent. It is a travesty of reality.
Spouting ostensible free market ideology, the pro-creditor mainstream rejects what the classical economic reformers actually wrote. One is left to choose between central planning by a public bureaucracy, or even more centralized planning by Wall Street’s financial bureaucracy. The middle ground of a mixed public/private economy has been all but forgotten — denounced as “socialism.” Yet every successful economy in history has been a mixed economy.
To help provide a remedy, this book explains how the upsweep of savings and debt has been politicized to control governments. The magnitude of debt tends to grow until a financial crash, war or political write-down occurs. The problem is not merely debt, but savings on the “asset” side of the balance sheet (mostly held by the One Percent). These savings mostly are lent out to become the debts of the 99 Percent.
As for financial dynamics in the business sector, today’s “activist shareholders” and corporate raiders are financializing industry in ways that undercut rather than promote tangible capital formation and employment. Credit is increasingly predatory rather than enabling personal, corporate and government debtors to earn the money to pay.
This pattern of debt is what classical economists defined as unproductive, favoring unearned income (economic rent) and speculative gains over profits earned by employing labor to produce goods and services. I therefore start by reviewing how the Enlightenment and original free market economists spent two centuries trying to prevent precisely the kind of rentier dominance that is stifling today’s economies and rolling back democracies to create financial oligarchies.
To set the stage for this discussion, it is necessary to explain that what is at work is an Orwellian strategy of rhetorical deception to represent finance and other rentier sectors as being part of the economy, not external to it. This is precisely the strategy that parasites in nature use to deceive their hosts that they are not free riders but part of the host’s own body, deserving careful protection.
The Parasite, the Host, and Control of the Economy’s Brain
Biological usage of the word “parasite” is a metaphor adopted from ancient Greece. Officials in charge of collecting grain for communal festivals were joined in their rounds by their aides. Brought along to the meals by these functionaries at public expense, the aides were known as parasites, a non-pejorative term for “meal companion,” from the roots para (beside) and sitos (meal).
By Roman times the word came to take on the meaning of a superfluous freeloader. The parasite fell in status from a person helping perform a public function to become an uninvited guest who crashed a private dinner, a stock character in comedies worming his way in by pretense and flattery.
Medieval preachers and reformers characterized usurers as parasites and leeches. Ever since, many economic writers have singled out bankers as parasites, especially international bankers. Passing over into biology, the word “parasite” was applied to organisms such as tapeworms and leeches that feed off larger hosts.
To be sure, leeches have long been recognized as performing a useful medical function: George Washington (and also Josef Stalin) were treated with leeches on their deathbeds, not only because bleeding the host was thought to be a cure (much as today’s monetarists view financial austerity), but also because leeches inject an anti-coagulant enzyme that helps prevent inflammation and thus steers the body to recovery.
The idea of parasitism as a positive symbiosis is epitomized by the term “host economy,” one that welcomes foreign investment. Governments invite bankers and investors to buy or finance infrastructure, natural resources and industry. Local elites and public officials in these economies typically are sent to the imperial or financial core for their education and ideological indoctrination to accept this dependency system as mutually beneficial and natural. The home country’s educational cum ideological apparatus is molded to reflect this creditor/debtor relationship as one of mutual gain.
Smart vs. self-destructive parasitism in nature and in economies
In nature, parasites rarely survive merely by taking. Survival of the fittest cannot mean their survival alone. Parasites require hosts, and a mutually beneficial symbiosis often results. Some parasites help their host survive by finding more food, others protect it from disease, knowing that they will end up as the beneficiaries of its growth.
A financial analogy occurred in the 19th century when high finance and government moved closer together to fund public utilities, infrastructure and capital-intensive manufacturing, especially in armaments, shipping and heavy industry. Banking was evolving from predatory usury to take the lead in organizing industry along the most efficient lines. This positive melding took root most successfully in Germany and its neighboring Central European countries under public sponsorship. Across the political spectrum, from “state socialism” under Bismarck to Marxist theorists, bankers were expected to become the economy’s central planners, by providing credit for the most profitable and presumably socially beneficial uses. A three-way symbiotic relationship emerged to create a “mixed economy” of government, high finance and industry.