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Veblen's Prediction: The Triumph Of Capital Rent

Economics / Economic Theory Feb 09, 2013 - 11:00 AM GMT

By: Andrew_McKillop


As early as 1921 Thorstein Veblen felt able to predict that capital rentiers in the non-communist western economies would voluntarily abandon industry, like the rentiers of the recently founded Soviet Union who had been forced at gunpoint to abandon their control of industry, and the "super profits" that industry could deliver. His argument was that capital rentiers in the "free market" economies had already proven, during and after the long depression that started in April 1873 and tailed off by the end of the 1880s, that they could extract more rent, or super profits from the "pure play" of capital, than from classic or conventional economic rent extracting activities, like industry.

In the 1930s, during the Great Depression, Joseph Schumpeter (like Veblen in no way a Marxist economist) explained that corporate-state collusion, what we call 'crony capitalism" today, featured a retreat from or abandonment of the normal goals of industry, such as increased production and product innovation. Industry was replaced and superceded by the "pure pursuit" of capital gains - necessarily leading to declining innovation, falling output and profits, and corporate failure.

Capital rent thrives on factors including deflation, business failure and distressed asset sales, economic stagnation, austerity and social inequality, high interest rates, tradable asset creation and trading, and has no need at all for classic or conventional industry. Other than high interest rates, these factors are dominant today - notably the retreat from and abandonment of industry - in the western "free market" economies. This is called the financialized or financiarized economy. These trends can also be considered the symptoms of capital rent achieving near total dominance.

Other symptoms are dramatically simple: for the period Sept 2008-Dec 2012, the 1% of the USA's economic actors, persons and entities, that were already the richest extracted 93% of all new or additional wealth created by the US economy, during that period.

We can argue that since 1980 we have entered the longest depression known since the start of the modern economy, during which capital rent has so massively distorted the economy that "classic recovery" is now impossible. The intensity of the depression has been masked (and of course talked around in government friendly media) by several factors and especially the offshoring of industry to China and India, enabling the exploitation of industrial workers paid $400 a month.

As the above Bloomberg story noted, the effects of this are socially devastating: "The earnings gap between rich and poor Americans was the widest in more than four decades in 2011, Census data shows, surpassing income inequality previously reported in Uganda and Kazakhstan". Countries in this state and condition, either underdeveloped or partly developed, without industry and with feudal or semi-feudal political power structures and systems, are ideally suited to the total dominance of capital rent, as was the case in the Europe at the time of the previous "high water mark" for capital rent: the late feudal period of the 12th and 13th centuries.

 Since 1980 and especially since the 1990s, sometimes in a superficially "non recessionary context", the globalizing economy has operated to further concentrate real economic power, with a de facto fusion of the State and capital rentiers, in full control of all "enabling and facilitating" institutions, such as the central banks, IMF, WTO, IBRD, BIS and the UN. One key result of this has been the de facto nationalization, or re-nationalization of the so-called "private" bank sector, overwhelmed by the number of bad bets operated by capital rent since year 2000, and more intensively since 2008. The conventional term for this symptom of capital rentiers overreaching themselves is the "global credit crunch".

Under conditions of credit crunch, virtual capital thrives, further shifting the focus of capital rentiers away from the "real economy". Example of this shift for example include the growth of credit derivatives creation and trading, and also explain the reason why interest rates are maintained, today, close to zero. Facilitating and enabling the trading of derived assets, based on debt/credit, requires massive quantities of players or gamblers in the New Economy casino, each supplied with sufficient gaming chips to play. In turn this signals a major stage or phase of the capital rent accumulation or concentrating process: decline in the real productivity of capital, inevitably reproduced and replicated in the "underlying security" of the real economy, characterized by ever lower net additions of output for each unit of capital invested, and therefore ever declining rates of economic growth and ever rising real rates of unemployment or underemployment.

Previous periods or phases of total dominance by capital rentiers have always been followed by civil war, colonial war, revolution or international war. Veblen wryly remarked (in The Theory of the Leisure Class) that either Uganda or Kazakhstan could provide role models for what capital rentiers want in the so-called "knowledge based consumer democracies" because these parasites want the social class stratification and the division of labor last known in the European feudal period. In this preferred model of society for capital rentiers, the lords of the manor employed themselves in economically useless and parasitic activities, including valorous small scale war, that is the practice of "conspicuous consumption and conspicuous leisure". While the rest of society stayed poor or starved!

Especially during civil wars and revolutions, capital rentiers can become designated targets for popular rage and pay for their arrogance, greed and cynicism - with their lives. Conversely, during world wars, capital rentiers have a proven track record of either preserving, or increasing their power. One example is the role of the Bush family of the US in the rise of Hitler, and the demise of Hitler. Capital rentiers therefore prefer to foment and organize, and profit from international warfare through playing both sides to any conflict, while savagely repressing all attemped revolution and social unrest targeting themselves, inside their "underlying security' the so-called mature postindustrial democracies.

While neoclassical economics defines human beings as rational utility-seeking agents who try to maximize their pleasure and minimize their pain, Veblen recast them as irrational economic creatures who pursue social status with - in fine - little regard to their own happiness and are incited, not only encouraged, to do so by the capital rentier class. This of course requires the most primitive of all struggles for status - through conflict and war. At the tribal level, even at the level of Uganda or Kazakhstan, this is not life threatening for the planet, but is threatening when it concerns all the "mature democracies" bogged down and mired by long recession and increasing poverty, due to the greed of capital rentiers.

Writing also as a sociologist, Thorstein Veblen outlined some consequences of a return to tribalistic social order as wanted by capital rent, despite the surface trappings of contemporary consumer society and its "organized democracy". This included the subjugation of women, expressed as the housewife-symbol or trophy attesting to a man’s socio-economic success, as in Saudi Arabia. The unemployed status of the housewife is a form of conspicuous leisure and an object of conspicuous consumption.

Another example was the popularity and market role of sport: as we know this is a key feature of today's "mature democracies" with 25% of their youth unemployed - but able to pay several million dollars a year to Football Heroes to tap a ball around 1 day a week, supposedly playing a major role in the so-called "psychological cohesion of the community".

Other examples cited by Veblen included the slide towards New Age supernatural worship, moving on from religion as a tribal expression of conspicuous leisure and conspicuous consumption, to the extremes of of social tribalism in the form of voluntarily mass worship of fatuous images and symbols, and the display of linked symbols. Above all however, Veblen underlined the major goal of the capital rentiers in society - to build and maintain an anti-intellectual and superstitious society, the most suited to complete exploitation.

As we know and Veblen knew, "all things pass", even the cult and the fake comfort of ignorance.

By Andrew McKillop


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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