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Why 95% of Traders Fail

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.

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