Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Will You Make Money in the New Silver Bull Market ? - 13th Aug 20
Hyper-Deflation Capital Destruction And Gold & Silver - 13th Aug 20
Stock Market Correction Approaching - 13th Aug 20
Silver Took the Stairs to $21 in 2008, Took Escalator to $29 2010. Is Silver on Elevator to 120th floor today? - 13th Aug 20
President Trump Signs Additional COVID Relief – What To Expect from the Markets - 13th Aug 20
Has Gold's Upward Drive Come to an End? - 13th Aug 20
YouTuber Ads Revenue & How to Start a Career on YouTube - 13th Aug 20
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Global Dominance Of Capital Rent

Stock-Markets / Credit Crisis 2013 Feb 07, 2013 - 03:28 PM GMT

By: Andrew_McKillop

Stock-Markets

IT STARTED IN EUROPE
With no possible surprise, the credit collapse since 2008 has its most sombre effects in Europe. Reasons for this include the very origins of the capital rent economy. The sterile debate between opponents and proponents of the state controlled economy, versus the free market economy, ignores the reality in all "mature economies" and firstly in Europe of the financiarized or capital rent dominated economy. 


The paradigm of the capital rent economy is 1%/99%, shown by the simplest of all figures. In the US, Japan and Europe during the period Sept 2008-Dec 2012 around 90% to 95% of all additional new wealth created was taken by the 1% of the population, both individuals and entities, which were and are the richest already.  Capital rent literally strangles the economy.

Ideological posturing on State-versus-private economic models firstly supposes that the economy could be anything but a mix and mingle of the two, and has been for thousands of years. Economic history shows that monopoly power on land, natural resources, ports, sea transport, land transport, energy, food and weapons production, tobacco and alcohol, and of course the production of money has always been a public-private domain of behind-the-scenes influence trading, ending in the concentration of economic power. The private-public border line was and is always subject to heavy blurring. Sometimes there was outright State control; in other cases monopoly-seeking capitalists operated and operate at one notch below the State or "fronted for the State".

One modern example of this, today, concerns "privatized former national corporations". In many European cases, especially in the energy sector, the State today often still retains 60%-90% of the capital of these nominally 'private' entities, but almost all their wealth creation is siphoned by rentiers.  

Under crisis conditions like today's global banking and credit crisis, the leading banks of several major countries including the US, European states and Japan, are now effectively nationalized. For ideological reasons only, they maintain the fiction of private ownership. In this specific case the State directly pays the capital rentiers, and is indebted to them, to keep operating the banking system. If the State does not pay, the capital rentiers will shut down the banking system causing instant chaos. This alone shows the total dominance of capital rent.

FAILED PRIVATIZATION

Outright State ownership of "the commanding heights" of the economy first occurred in Europe, in economies which were liberating themselves from the feudal period and morphing into the early colonial period, from about 1500-1600 AD. At the same time, a special sort of "privatization" occurred on a parallel track - the creation of capital rent and rentiers. The State, embodied by the Monarch, operated public-private economic monopolies with a chosen and select circle of rentiers, that is private persons and entities or groups of individuals, who rapidly applied their 1%/99% rule.

Rents could take the form of entire colonial countries, for example vast swaths of the future US and Canada, India, South Africa, West Africa, South America and elsewhere were operated by European rentier companies paying rent or taxes to their indebted Monarch, whose free-spending lifestyle and accumulated or inherited debts force the Monarch - that is the State - to cede or let more rent-generating monopolies to the rentiers. The aim of ending these privileges or taxing away economic rent where it occurs naturally, for example as oil rent and natural resource rent, was rationalized as needed to raise economic efficiency, through lowering the cost of living and the cost of doing business.

At latest by the 18th century in Europe, the morph from a rentier-operated but nominally Monarch/State-controlled economy, to so-called "progressive economies" with increasing numbers of private-public entities and apparently completely private entities, was linked with the side issue of competitiveness. This occurred within an early historical version, in the 17th and 18th centuries, of the globalizing process where other European countries were obliged to compete and follow suit, or become economically obsolete or be colonized themselves.

In both the last two cases, they rapidly became enthralled to rentiers - "thrall" in capital rent economics meaning servitude, bondage, slavery or subjection.  

National economic power featuring the State/Monarch and capital rentiers, in this early version of the globalizing economy, had already replaced formal State-controlled economic power, and the highly theoretical option, or illusion of full or pure private economic power. With no surprise at all, also in Europe by the 18th and 19th centuries, this economic shift led to political socialism on one hand, and full spectrum intensely operated capital rent economies on the other. Today's situation is basically unchanged; it has only been intensified to perhaps the ultimate extreme.

CAPITAL RENT AND THE FREE MARKET

Most important of all, none of these economic models, nor their support ideologies promoted "the pure free market". This had already been made obsolete by capital rent. For at least the past 250 years in Europe, the "public sector" has been part and parcel of the evolution of industry, technology and wealth because the State/Monarch and capital rentiers operated a one-way concentrating process, to their strict personal benefit, essentially binding or fuzing the two into a single entity. The constant trend to the concentration of capital owned and operated by capital rentiers, supposedly at the behest of the State or Monarch, was all-powerful by the end of the 19th century in Europe and the US, and was already the focus of detailed economic analysis, notably by Thorstein Veblen.

http://michael-hudson.com/2012/07/veblens-institutionalist-elaboration-of-rent-theory/

This placed capital rent in opposition to "classic liberal economics" whose central tenets included the concept that "free-lunch economic rent" should serve as the tax base for national economies, a "proto socialist' notion of classical economists like J. S. Mill seeking the twin goals of efficiency and growth. This essentially ideological debate, with semi-socalist leanings, was part of a 19th century European wish-list debate in pursuit of the "progressive economy", but came long after capital rent had already triumphed. The ideological trench warfare around the concept of "the free market" - and its real world opposite the capital rent dominated economy - started in Europe, but as early as the 1850s was fully established, naturalized and at home in the USA's capital rent dominated economy.

 One concrete immediate early effect of this, with long-term impacts on US foreign policy today, was the creation of "Banana republics" operated by rentier entities, rather than full or formal US colonies, and the very early creation of offshore tax havens. In the case of European colonization, preceding US almost purely rentier-operated colonization, there had been phases of firstly State colonization, before the hand over to rentiers.

Most important in relation to the post-2008 crisis, the capital rent dominated economy neither needs democracy or the free market. This creates ongoing stress for rentiers, only partly controlled by the emergence of state, media and corporate controlled democracy operated by the "two party system", the governing party-and-loyal opposition party system we have today in the "mature democracies". This, further intensifies the trench war action of rentiers fearing the loss of their near-total economic dominance. Their constant struggle, which continues today, is to convince the media and public opinion that labor and consumption should be taxed, not the financial gains of the wealthiest 1% of the population in an already financiarized economy.  

The so-called fully private, free market, liberal economy - an intellectual construct developed by writers like Adam Smith and Robert-Jacques Turgot in the 1760s and still promoted today by the Austrian School - was an illusion created to amuse the benefactors of Smith and Turgot, the French and British monarchies and their circle of rentiers, both old and new.  During the 19th century the seamless and almost instant replacement of the Monarcy by new rentiers - that is "classic capital rentiers" - was the dominant process in all European economies, states and nations, and in the US. Where these states retained their Monarchs, the rentier-operated economy proceeded at one level below the figurehead or symbolic monarchic level, constantly creating monopolistic rent-seeking cartels in the so-called "free market sector".

NATIONALIZE DEBT - PRIVATIZE PROFITS

Certainly since the credit and banking crisis of 2008, and certainly in the US and Japan as well as Europe, the State has de facto nationalized or renationalized large swaths of the economy. The most important feature, however, is that both state debt and corporate debt have not only vastly grown, but have also been shuffled and fuzed together, into "tradable debt": this in all cases is controlled by and for the profit of capital rentiers. Where market collapse threatens, the debt amounts and its servicing costs will be fully nationalized.  Idle discussion on protecting markets from monopolies, oil price gouging corporations, crooked drug companies, predatory insurance companies and finance companies needs the condition that "reform" is possible, and that a "full free market" is possible.

More than 300 years of European and then world economic history says this is impossible.

 The idea that a “free market” could start again on a fresh start greenfield basis with entirely independent actors, is basically science fiction. Just possibly and literally at the Austrian Scale (not Austrian School), tiny markets operated by small business persons in a highly civilized manner would need only the lightest of regulation, conjuring up images of cows browsing on the mountain slopes as the yodeling horn started each day's trading. The number of light years and centuries distancing this from the current real world economy, and its national economies, is unfortunately huge.  

The current political context in the "mature democracies" shows the ultimate in doublethink: public opinions browbeaten and propagandized into being "convinced" that the bottom 99% on the wealth scale should pay taxes, rather than the 1% which takes the interest, dividends and capital gains. The democratic State, as the expression of the people, is subservient to capital rentiers. Any European monarch of the 17th century would have agreed this is an almost miraculous triumph for Capital!  

KEEPING THE POOR IN DEBT

Since 2008 and the collapse of the credit bubble, free lunches are getting harder to find, even for the capital rentier class. To be sure, stonewaller ideologists of the capital rent dominated "free market" continue to pose the question: “How can we make the 99% pay more to stay poor?” The "we" obviously includes some of the 99%, but includes all members of the 1%. Under crisis conditions, it become much clearer that the more extremely unequal the wealth distribution, the more it is necessary and then obligatory for the 1% to further enrich themselves by lending money to, and further indebting the 99%, making them poorer. Once again, any 17th century European monarch would instantly understand and approve of this. 

The cause of this no-win system where the rich get richer, but the poor pay taxes and have babies, is basically because the "financiairzed economy" and system are a set of debts owed to creditors. It is therefore a seamless rentier economy, or "neo-rentier" economy, in which all the shiny balls quickly slide into the right pockets, on the heavily tilted economic playfield. This obligatory needs State or Monarchic control, from on high, but only for decorative and riot control purposes.

Democracy is unsuited to this model, even the symbolic two-party democracy system operated in the formerly rich or "mature" capital rent economies.

 The degree of financial polarization has sharply accelerated, even since 2008 as the 1% continue indebting the 99% – which includes industry, commerce and governments – to the predictable point where the entire economic surplus will be owed as debt service. This will create the Total Monopoly economy, similar to the Soviet Union in its deathbed phase, complete with Mafia-style organized crime syndicates ready to flower in the coming "free market" of capital rentiers no longer needing to gurgle Marxist slogans. Showing this is far from a fantasy forecast, as already noted above, the top 1% of US revenue and income earners took 93% of all US wealth creation during the period September 2008-December 2012. 

Contrary to the output of wealth-friendly media, economic crises such as the 2008-2009 crisis do not weaken the financiarized economy, but strengthens the role of capital rent through forcing the "fire sale" of distressed assets. The concentrating process accelerates during crisis, with a clear trend to capital rentiers seeking to capture the entire economic infrastructure, land, natural resources, and any other asset on which rent-extracting operations can be carried out on a continuing basis - exactly like the rights to operate highway tollbooths which indebted Monarchs of 17th and 18th century Europe were forced to cede to the rentiers they were indebted to. 

The major difference is that extreme concentration of capital rent was already declining in 17th century Europe, and was heavily diluted by the late 18th century. To find a better analogy with today's financiarized economy, we would need to look at early medieval Europe following the Nordic invasions of the 12th or 13th centuries. The present 1%/99% situation could be compared with the largest extent and power of the Roman catholic church and its Holy Roman Empire, with local feudal monarchies operating as "partner entities", and with Nordic invaders operating "asset raiding" invasions, creating new opportunities for rent shuffling and fuzing, before its re-concentration as capital rent.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

Andrew McKillop Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules