Of Course Billionaires Shouldn’t Exist

Posted on March 17, 2020 by Reid Mukai

There’s apparently a row over whether billionaires should exist. That is, whether or not billionaires should be a thing in our society.

What a stupid question. Of course billionaires shouldn’t exist! But the reason has nothing to do with Socialism.

Rather, under a properly-functioning free-market capitalist system, billionaires shouldn’t exist. And that would have also been the opinion of the “Classical Liberals” so favored by the Right these days: Adam Smith, David Ricardo. Thomas Malthus, John Stuart Mill, and so on.

Billionaires are a sign of market failure.

Let me say that again: billionaires are a form of market failure! You cannot simultaneously be both pro-Market and pro-billionaire.

I’m amazed at how few people get this!

In a truly competitive market, excess profits would be competed away. Someone would come along and undercut outsize profits. That’s exactly how the Classical Liberals assumed free markets would work. In this, they saw markets as instruments of greater equality, not inequality, and certainly not as a way to construct a new and improved aristocracy even more powerful than the old one.

The Classical Liberals wrote in opposition to the main power centers of their day: aristocratic government and chartered monopolies like the East India Company. They didn’t see the purpose of their writings as defending privilege and power. One can dispute the end results, but that was not their goal. Quite the contrary. The idea that a single, solitary individuals would possess more wealth than the kings and pharaohs of old under a functioning free market system would have been unthinkable to them.

In their time, much of the national wealth was monopolized by a landed aristocracy who gained their wealth through disproportionate ownership of the country’s productive land. The other major source of wealth came from large joint-stock companies that were granted royal monopolies due to their political connections. Yet another source of unearned wealth came from the holders of bonds (gilts)—essentially loaning money to the state and getting the government’s tax revenues funneled to them via interest payments.

Classical English Liberals felt that competitive markets would do away with a good portion of the unearned and unproductive wealth common in Great Britain at the time. They believed that “free and open” markets would channel wealth and activity to more productive ends. That is, they would break up large pools of wealth and unproductive money. The kind of obscene fortunes that they saw in their day would no longer be possible thanks to competition, they assumed, and that British society would become more equal than it was under landed aristocracy, not less. We can dispute their logic (and I have issues with it), but I think we can safely say that this is what they believed, rightly or wrongly.

An inherent part of their conception of free markets is the possibility of failure. Unproductive or inefficient businesses would be competed away, they assumed, and the fortunes earned through such activities would disappear. But that is not the case today. Billionaires have so much money they can literally never lose it! That’s not capitalism, that’s aristocracy. I read recently that someone like Bill Gates literally cannot give away money to his pet causes fast enough to reduce his fortune even if he tried. In fact, he’s grown wealthier even while giving away billions.

The important point about [Adam] Smith’s system, on the other hand, is that it precluded steep inequalities not out of a normative concern with equality but by virtue of the design that aimed to maximize wealth. Once we put the building blocks of his system together, concentration of wealth simply cannot emerge.

In Smith, profits should be low and labor wages high, legislation in favor of the worker is “always just and equitable,” land should be distributed widely and evenly, inheritance laws should partition fortunes, taxation can be high if it is equitable, and the science of the legislator is necessary to thwart rentiers and manipulators.

Political theorists and economists have highlighted some of these points, but the counterfactual “what would the distribution of wealth be if all the building blocks were ever in place?” has not been posed. Doing so encourages us to question why steep inequality is accepted as a fact, instead of a pathology that the market economy was not supposed to generate in the first place.

Yet today the people who call themselves the heirs to “Classical English Liberals” emphatically defend the existence of billionaires and extreme inequality at every turn. Such people are not pro-market or pro-capitalism as they like to portray themselves; they are simply pro-wealth, or—to use a less complementary term—bootlickers. They are not defending capitalism or Markets; what they really are defending is oligarchy, power, privilege, and hierarchy. As Corey Robin opined, “The priority of conservative political argument has been the maintenance of private regimes of power,” with all the soaring rhetoric about markets and freedom being just a smokescreen and a cover for defending hierarchies and power imbalances. Their defense of billionaires is proof positive of this. This is true of presidential candidates as well.

The existence of obscene fortunes and extreme inequality are not a sign of capitalism’s success; they are a sign of capitalism’s failure.

This is pointed out by Chris Dillow:

“I don’t think anyone in this country should be a billionaire” said Labour’s Lloyd Russell-Moyle yesterday, at which the BBC’s Emma Barnett took umbrage. The exchange is curious, because from one perspective it should be conservative supporters of a free market who don’t want there to be billionaires.

I say so because in a healthy market economy there should be almost no extremely wealthy people simply because profits should be bid away by competition. In the textbook case of perfect competition there are no super-normal profits, and in the more realistic case of Schumpeterian creative destruction, high profits should be competed away quickly.

From this perspective, every billionaire is a market failure – a sign that competition has failed. The Duke of Westminster is rich because there’s a monopoly of prime land in central London. Would Ineos’ Jim Ratcliffe be so rich if pollution were properly priced, or if his firm faced more competition?

The Right’s Mega-Rich Problem (Stumbling and Mumbling)

How is this rectified? How do they square their supposed love of fair competition and free and open markets with the presence of outsize fortunes?

They don’t.

And the sad thing is how many people buy into their nonsense. Everyone seems to think that a defense of billionaires is a defense of capitalism.

It’s not. It’s the opposite.

What is a billionaire?

Billionaires are only made possible through monopolies and tollbooths. Period. And such monopolies are more possible than ever before thanks to technology.

This is argued by Matt Stoller, an expert on monopolies, in a post entitled, What Is A Billionaire?:

Most people think a billionaire is someone with a lot of money, a sort of Scrooge McDuck who goes swimming in a pool of gold coins. And why wouldn’t we? The name billionaire has the word billion contained within it, so clearly it means having a net worth of at least ten figures. And in a sense, that is technically true. But if you look at the top ranks of the Bloomberg billionaire index, you’ll notice that nearly all of the leaders are people who own a corporation with substantial amounts of market power in one or more markets.

Billionaires use market power to extract revenue the way that a tollbooth operator does. If you want to drive on a road, you have to pay for the privilege. It costs the tollbooth operator nothing, he/she just has a strategic chokepoint for extraction. Billionaire Warren Buffett, for instance, has such a ‘tollbooth’ strategy for investing, though he uses the term ‘moat’ because it sounds charming and quirky rather than rapacious.

Put another way, the Bloomberg billionaire index isn’t a list of the most important Scrooge McDuck’s, it’s a list of the biggest tollbooth operators in the world.

What he’s saying is that one becomes a billionaire only by short-circuiting the competitive market economy. Then their profits cannot be competed away. Only by gaming the system can one “earn” over a billion dollars. No one person is that valuable.

Stoller goes on to elucidate the operational tactics used by both Bill Gates and by his predecessor John D. Rockefeller, and finds that even though the industries are radically different, the techniques of short-circuiting and circumventing market competition are the same. Whether it’s horizontal and vertical integration, or using market influence to price out rivals, or exclusive contracts, the techniques are the same regardless of industry or time period:

In 1976 and 1980, Congress allowed the copyrighting of software. IBM had been under aggressive antitrust investigation and litigation since 1967, so when it built a personal computer, it outsourced the operating system – MS-DOS – to Gates’s company and allowed Gates to license it to other equipment makers. (Gates’s upbringing didn’t hurt; the CEO of IBM at the the time knew his mother.) Such a relationship with a vendor was a shocking change for IBM, which had traditionally made everything in-house or tightly controlled its suppliers. But IBM treated Microsoft differently, transferring large amounts of programming knowledge to the small corporation. IBM also did this with the microprocessor company Intel, which IBM protected from Japanese competition.

And yet, in 1982, the Department of Justice dropped the antitrust suit against IBM, signaling a new pro-concentration framework. Bill Baxter, Reagan’s antitrust chief, did not want to bring monopolization suits, and did not. The new fast-growing technology space of personal computers would be a monopolized industry. But it would not be monopolized by IBM, which had kept control of the computing industry since the 1950s, because IBM’s corporate structure was now skittish about the raw use of power. And it would not be monopolized by AT&T, which was kept out of the computing industry by a 1956 consent decree that lasted until 1984. Gates, in many ways, had a greenfield, an environment friendly to monopoly but one in which all the old monopolists had been cleared out by antitrust actions.

In the case of Amazon, even though it theoretically has competition, through vertical and horizontal integration it can effectively control online e-commerce to a large degree. The result is a fortune greater than that of entire nation-states controlled by a single individual. One hardly imagines that Adam Smith would approve.

I read an interesting concept, and I forget where it came from. It was that networks are natural monopolies. This explains things like Facebook, Apple, Amazon, etc. It’s entirely possible that the online world, due to features inherent in the technology, simply cannot be regulated by normal competition the way the market for goods and services can. Yet all our theories pretend that it can. It’s delusional.

Under these scenarios,’ profits’ are really a form of tribute (or perhaps plunder). In fact, we really shouldn’t even use the word ‘profits’ to describe them (just like we shouldn’t use ‘trade’ to describe global wage arbitrage).

And there are many more examples of competition being limited by deliberate legal policy. Much of Microsoft’s profits come from the fact that other people can’t copy their software—which they’ve arbitrarily labeled “piracy”—without facing legal repercussions enforced by the state and its legal system. In that sense, outsized fortunes are a consequence of laws, and not a feature inherent to technology:

…inequality is not in fact driven by technology, it is driven by our policy on technology, specifically patent and copyright monopolies. These forms of protection do not stem from the technology, they are policies created by a Congress which is disproportionately controlled by billionaires.

If the importance of these government granted monopolies is not clear, ask yourself how rich Bill Gates would be if any start-up computer manufacturer could produce millions of computers with Windows and other Microsoft software and not send the company a penny. The same story holds true with most other types of technology. The billionaires get rich from it, not because of the technology but because the government will arrest people who use it without the patent or copyright holder’s permission.

This point is central to the debate on the value of billionaires. If we could get the same or better technological progress without making some people ridiculously rich, then we certainly don’t need billionaires. But in any discussion of the merits of billionaires, it is important to understand that they got their wealth because we wrote rules that allowed it. Their immense wealth was not a natural result of the development of technology.

Farhad Manjoo promotes billionaire ideology in proposal to get rid of billionaires (Dean Baker, Real World Economic Review)

Baker has also pointed out that outsized salaries in many fields are determined by limiting competition though things like wildly expensive education and licensing requirements, which are ultimately determined by the government. Doctors and lawyers do not have compete against the wage rates in India or China thanks to the legal system, for example. Everyone else, however, is required to compete against the entire world for jobs.

On a global level, most billionaires are not the result of “hard work” or doing things beneficial for their society:

The vast majority of the world’s billionaires have not become rich through anything approaching ‘productive’ investment. Oxfam has showed that, approximately one third of global billionaire wealth comes from inheritance, whilst another third comes from ‘crony connections to government and monopoly’.

Why on Earth Shouldn’t People Be Able to Be Billionaires? (Novara Media)

And the monopolies that allow billionaires to exist are not good for the economy as a whole. In fact, they are highly detrimental, as Chris Dillow further points out:

What’s more, monopoly pricing is a form of tax – a tax which often falls upon other, smaller businesses…In this sense, not only are billionaires a symptom of an absence of a healthy competitive economy, but they are also a cause of it: their taxes on other firms restrict growth and entrepreneurship…

Tories are wrong, therefore, to portray attacks on the mega-rich as the politics of envy. It’s not. The existence of billionaires is a sign and cause of a dysfunctional economy…

In fact, logically, it is rightists who should be most concerned by the concentration of wealth. We lefties can point to it as evidence that the system is rigged. But Tories should worry that it undermines the legitimacy of the existing order not only because people don’t like inequality, but because it slows down economic growth and so encourages demands for change.

Furthermore, their existence is detrimental politically:

Controlling society’s wealth effectively gives the wealthy the right to plan economic activity. Billionaires – and the people who manage their money – determine which governments can access borrowing, which companies deserve to grow, and which ideas should be researched. This gives them an immense amount of political, as well as economic, power – allowing billionaires to provide favours to those politicians who helped them get rich in the first place.

Ultimately, the monopolisation of society’s resources by a tiny, closed-off elite means that most of society’s resources are used for dirty, unsustainable and unproductive speculation.

Why on Earth Shouldn’t People Be Able to Be Billionaires? (Novara Media)

In fact, the proliferation of billionaires in the developed world has accompanied a period of slow growth and stagnation, not rapid growth. As has been pointed out ad nauseum, yet still fails to sink in, America’s fastest period of growth came when there were fewer billionaires and tax rates ranged from 50 to 90 percent. There is no evidence that the proliferation of billionaires has benefited society as whole. And now, billionaires are attempting to buy political offices outright, making a joke of democracy.

People defending billionaires are only defending raw power, not capitalism, not democracy, and certainly not free markets.

Stoller concludes:

[Billionaires] are not people with a bunch of dollar bills stacked to the moon, they are (largely) men with a strategic position of power protected by public laws and rules. They aren’t better or smarter than anyone else, they are simply politically adept and in the right place at the right time. There’s no reason we have to enable such people to run our culture. At the end of the day, tollbooths are nothing but bottlenecks on a road on which we would otherwise travel faster and more freely.

What is a Billionaire? (Matt Stoller)

So, should there be billionaires? The answer is no. And you should believe that if you consider yourself a libertarian free marketeer or a democratic socialist. Anyone asserting anything else is just a bootlicker or a toady.

Addendum:

Here’s a good piece explaining how billionaires are basically mad kings:

…one of civilization’s great challenges stems from millionaire rhyming with billionaire. In holding them in the same linguistic corner of our minds, we conflate them, yet they’re so mathematically distinct as to be unrelated. A millionaire can, with some dedicated carelessness, lose those millions. Billionaires can be as profligate and eccentric as they wish, can acquire, without making a dent, all the homes and jets and islands and causes and thoroughbreds and Van Goghs and submarines and weird Beatles memorabilia they please. Unless they’re engaging in fraud or making extremely large and risky investments, they’re simply no match for the mathematical and economic forces—the compounding of interest, the long-term imperatives of markets—that make money beget more money. They can do pretty much whatever they want in this life, and therein lies the distinction. A millionaire enjoys a profoundly lucky economic condition. A billionaire is an existential state.

This helps explain the cosmic reverence draped over so many billionaires, their most banal notions about innovation and vision repackaged as inspirational memes, their insights on markets and customers spun into best sellers. Their extravagances are so over the top as to inspire legend more often than revolution…

The Gospel of Wealth According to Marc Benioff (Wired)

One of the most potent demonstrations that the modern-day rich are mad kings, comes form the story of Adam Neumann of WeWork. This is the impression I got from the Behind the Bastards podcast on Neumann: The Idiot Who Made, and Destoryed, WeWork (Podtail)

Counting Jeff Bezos’s fortune using 1 grain of rice = $100,000
byu/GallowBoob innextfuckinglevel

Luddism and Economic Ideology

Posted on June 6, 2017 by Reid Mukai

Source: the HipCrime Vocab

Smithsonian Magazine has a very good feature on the Luddites, well worth a read. There are many elements you just don’t read in many economic histories; for example, the 40-hour work week was not brought down from the mountaintop by Moses and inscribed in stone tablets, despite what you may have heard elsewhere:

At the turn of 1800, the textile industry in the United Kingdom was an economic juggernaut that employed the vast majority of workers in the North. Working from home, weavers produced stockings using frames, while cotton-spinners created yarn. “Croppers” would take large sheets of woven wool fabric and trim the rough surface off, making it smooth to the touch.

These workers had great control over when and how they worked—and plenty of leisure. “The year was chequered with holidays, wakes, and fairs; it was not one dull round of labor,” as the stocking-maker William Gardiner noted gaily at the time. Indeed, some “seldom worked more than three days a week.” Not only was the weekend a holiday, but they took Monday off too, celebrating it as a drunken “St. Monday.”

Croppers in particular were a force to be reckoned with. They were well-off—their pay was three times that of stocking-makers—and their work required them to pass heavy cropping tools across the wool, making them muscular, brawny men who were fiercely independent. In the textile world, the croppers were, as one observer noted at the time, “notoriously the least manageable of any persons employed.”

The introduction of machinery in cloth manufacture did not make these people’s lives better. In fact, it made them a lot worse:

“They [the merchant class] were obsessed with keeping their factories going, so they were introducing machines wherever they might help,” says Jenny Uglow, a historian and author of In These Times: Living in Britain Through Napoleon’s Wars, 1793-1815.

The workers were livid. Factory work was miserable, with brutal 14-hour days that left workers—as one doctor noted—“stunted, enfeebled, and depraved.” Stocking-weavers were particularly incensed at the move toward cut-ups. It produced stockings of such low quality that they were “pregnant with the seeds of its own destruction,” as one hosier put it: Pretty soon people wouldn’t buy any stockings if they were this shoddy. Poverty rose as wages plummeted.

Yes, you read that right- the introduction of “labor-saving” technology made the amount these people worked increase dramatically. It also made their work much, much more unpleasant. It transferred control to a smaller circle of wealthy people and took it away from the workers themselves. It made the rich richer, increased poverty, and tore society apart.

But more technology is always good, right?

And since history is written by the victors, “Luddite” is a term now inextricably wound up with the knee-jerk rejection of new technology. But the Luddites weren’t opposed to new technology at all! What they were fighting against was the economic conditions that took away their autonomy and turned them into mendicants in their own country:

The workers tried bargaining. They weren’t opposed to machinery, they said, if the profits from increased productivity were shared. The croppers suggested taxing cloth to make a fund for those unemployed by machines. Others argued that industrialists should introduce machinery more gradually, to allow workers more time to adapt to new trades.

The plight of the unemployed workers even attracted the attention of Charlotte Brontë, who wrote them into her novel Shirley. “The throes of a sort of moral earthquake,” she noted, “were felt heaving under the hills of the northern counties.”

[…]

At heart, the fight was not really about technology. The Luddites were happy to use machinery—indeed, weavers had used smaller frames for decades. What galled them was the new logic of industrial capitalism, where the productivity gains from new technology enriched only the machines’ owners and weren’t shared with the workers.

In fact, the Luddites actually spared the machines that were used by employers who treated workers fairly. Funny how you never hear that in most popular descriptions of the Luddite revolt:

The Luddites were often careful to spare employers who they felt dealt fairly. During one attack, Luddites broke into a house and destroyed four frames—but left two intact after determining that their owner hadn’t lowered wages for his weavers. (Some masters began posting signs on their machines, hoping to avoid destruction: “This Frame Is Making Full Fashioned Work, at the Full Price.”)

Unlike today, labor actually fought back against these attempts to destroy their way of life:

As a form of economic protest, machine-breaking wasn’t new. There were probably 35 examples of it in the previous 100 years, as the author Kirkpatrick Sale found in his seminal history Rebels Against the Future. But the Luddites, well-organized and tactical, brought a ruthless efficiency to the technique: Barely a few days went by without another attack, and they were soon breaking at least 175 machines per month. Within months they had destroyed probably 800, worth £25,000—the equivalent of $1.97 million, today.

Rather than the “natural course” of free-market economics, once again it was government intervention, including brutal state violence, that made modern capitalism possible:

Parliament was now fully awakened, and began a ferocious crackdown. In March 1812, politicians passed a law that handed out the death penalty for anyone “destroying or injuring any Stocking or Lace Frames, or other Machines or Engines used in the Framework knitted Manufactory.” Meanwhile, London flooded the Luddite counties with 14,000 soldiers.

By winter of 1812, the government was winning. Informants and sleuthing finally tracked down the identities of a few dozen Luddites. Over a span of 15 months, 24 Luddites were hanged publicly, often after hasty trials, including a 16-year-old who cried out to his mother on the gallows, “thinking that she had the power to save him.” Another two dozen were sent to prison and 51 were sentenced to be shipped off to Australia.

But wait, isn’t capitalism all about “freedom and liberty?” Freedom and liberty for some, I guess.

The problem, then as now, was not technology itself, but the economic relations that it unfolded against. What I found most interesting is that even back then, the emerging pseudoscience of economics was used to justify the harsh treatment of the workers and the bottomless greed of capitalists, in particular the “sacred text” of modern Neoclassical economics, Adam Smith’s The Wealth of Nations:

For the Luddites, “there was the concept of a ‘fair profit,’” says Adrian Randall, the author of Before the Luddites. In the past, the master would take a fair profit, but now he adds, “the industrial capitalist is someone who is seeking more and more of their share of the profit that they’re making.” Workers thought wages should be protected with minimum-wage laws. Industrialists didn’t: They’d been reading up on laissez-faire economic theory in Adam Smith’s The Wealth of Nations, published a few decades earlier.

“The writings of Dr. Adam Smith have altered the opinion, of the polished part of society,” as the author of a minimum wage proposal at the time noted. Now, the wealthy believed that attempting to regulate wages “would be as absurd as an attempt to regulate the winds.”

It seems as though nothing’s really changed. Using economic “science” to justify social inequality and private ownership goes back to the very beginnings of the Market.

When Robots Take All of Our Jobs, Remember the Luddites (Smithsonian Magazine). Smithsonian wrote about this before, see also: What the Luddites Really Fought Against

As the above history shows, there is nothing “natural” or normal about extreme busyness and brutally long working hours. It is entirely an artificial creation:

A nice post at the HBR blog…describes how being busy is now celebrated as a symbol of high status. This is not natural. Marshall Sahlins has shown that in hunter-gather societies (which were the human condition for nine-tenths of our existence) people typically worked for only around 20 hours a week. In pre-industrial societies, work was task-oriented; people did as much as necessary and then stopped. Max Weber wrote:

“Man does not “by nature” wish to earn more and more money, but simply to live as he is accustomed to live and to earn as much as is necessary for that purpose. Wherever modern capitalism has begun its work of increasing the productivity of human labour by increasing its intensity, it has encountered the immensely stubborn resistance of this leading trait of pre-capitalistic labour. (The Protestant Ethic and the Spirit of Capitalism, p24”

The backward-bending supply curve of labour was normal.

E.P. Thompson has described how pre-industrial working hours were irregular, with Mondays usually taken as holidays. He, and writers such as Sidney Pollard and Stephen Marglin, have shown how the working day as we know it was imposed by ruthless discipline, reinforced by Christian moralists. (There’s a clue in the title of Weber’s book). Marglin quotes Andrew Ure, author of The Philosophy of Manufacturers in 1835:

“The main difficulty [faced by Richard Arkwright] did not, to my apprehension, lie so much in the invention of a proper mechanism for drawing out and twisting cotton into a continuous thread, as in…training human beings to renounce their desultory habits of work and to identify themselves with the unvarying regularity of the complex automation. To devise and administer a successful code of factory discipline, suited to the necessities of factory diligence, was the Herculean enterprise, the noble achievement of Arkwright…It required, in fact, a man of a Napoleon nerve and ambition to subdue the refractory tempers of workpeople accustomed to irregular paroxysms of diligence.”

Today, though, such external discipline is no longer so necessary because many of us – more so in the UK and US than elsewhere – have internalized the capitalist imperative that we work long hours, …Which just vindicates a point made by Bertrand Russell back in 1932:

“The conception of duty, speaking historically, has been a means used by the holders of power to induce others to live for the interests of their masters rather than for their own.”

Against busyness (Stumbling and Mumbling)

Honestly, the five-day workweek is outmoded and ridiculous. It’s more of a babysitting operation for adults than anything else. It’s a silly as arguing that we need over two decades of formal education in order to do our jobs.

I was reminded of this over the holidays. In the U.S. we get virtually no time off from our jobs, unlike most other countries (East Asia might be an exception). But Christmas/New Year’s is a rare exception, and we have several four-day weeks in a row (without pay for some of us, of course). Those weeks are so much more pleasant, and I would even say productive, than the rest of the year. Every year at this time I think to myself, “Why isn’t every week a four-day workweek?” Some places do have such an arrangement, but they justify it by four long, ten-hour days. I don’t know about you, but towards the end of ten hours in a row of “work” I doubt anyone’s accomplishing much of anything. Is 32 hours a week really not enough to keep society functioning in the twenty-first century?

Not only that, but many people use whatever little vacation they do have in order to take the whole time period at the end of the year off. This is typical in Europe, but rarer here. In any case, while going to work I noticed that there was hardly any traffic. The roads were empty. There were plenty of seats on the bus. The streets and sidewalks were empty. There was no waiting in the restaurants and cafes. There was plenty of room for everything. There was a laid-back feeling everywhere. It was so pleasant. I couldn’t help but think to myself, “why isn’t every week like this?” If more people could stay home and work less, it very well could be. Instead we’re trapped on a treadmill. Working less would actually pay dividends in terms of reduced traffic, less crowding, less pollution, and better health outcomes due to less stress and more time to exercise.

There’s also a simple logic problem at work here. If we say the 40-hour week is inviolable and set-in-stone for the rest of time, and we do not wish to increase the problem of unemployment, then literally no labor-saving technology will ever save labor! We might as well dispense with the creation of any labor-saving technology, since by the above logic, it cannot save labor. You could equivocate and say that it frees us from doing “lower” level work and allows us to do “higher” level work, as when ditch diggers become factory workers, or something. That may have been a valid argument a hundred years ago, but in an age when most of us are low-paid service workers or useless paper-pushers, it’s pretty hard to make that case with any seriousness anymore.

***

I often refer to economics as a religion, with its practitioners as priests. So it’s interesting to read that in other contexts. This is from Chris Dillow’s blog, where the above passage about work was taken:

The social power, i.e. the multiplied productive force”, wrote Marx, appears to people “not as their own united power but as an alien force existing outside them, of the origin and end of which they are ignorant, which they thus cannot control.”

I was reminded of this by a fine passage in The Econocracy in which the authors show that “the economy” in the sense we now know it is a relatively recent invention and that economists claim to be experts capable of understanding this alien force:

“As increasing areas of political and social life are colonized by economic language and logic, the vast majority of citizens face the struggle of making informed democratic choices in a language they have never been taught. (p19)”

This leads to the sort of alienation which Marx described. This is summed up by respondents to a You Gov survey cited by Earle, Moran and Ward-Perkins, who said; “Economics is out of my hands so there is no point discussing it.”

In one important sense such an attitude is absurd. Every time you decide what to buy, or how much to save, or what job to do or how long to work, economics is in your hands and you are making an economic decision.

This suggests to me two different conceptions of what economics is. In one conception – that of Earle, Moran and Ward-Perkins – economists claim to be a priestly elite who understand “the economy”. As Alasdair MacIntyre said, such a claim functions as a demand for power and wealth:

“Civil servants and managers alike [he might have added economists-CD] justify themselves and their claims to authority, power and money by invoking their own competence as scientific managers (After Virtue, p 86).”

There is, though, a second conception of what economists should do. Rather than exploit alienation for their own advantage, we should help people mitigate it…

Economists in an alienated society (Stumbling and Mumbling)

This makes a point I often refer to – this depiction of “The Economy” as some of “natural” force that we have no control over, subject to its own inexorable logic. We saw above how the writings of Adam Smith provided the ideological justification for the wealthy merchants to screw over the workers. It cemented the perception that the economy was just a natural force with its own internal logic that could no more be regulated than could the wind or the tides. And over the course of several hundred years, we have intentionally designed our politcal institutions such that government cannot “interfere” in the “natural workings” of the economy. Doing so would only make all of us worse off, or so goes the argument.

There is a telling passage in this column by Noah Smith:

…Even now, when economic models have become far more complex than anything in [Milton] Friedman’s time, economists still go back to Friedman’s theory as a mental touchstone — a fundamental intuition that guides the way they make their models. My first macroeconomics professor believed in it deeply and instinctively, and would even bring it up in department seminars.

Unfortunately, intuition based on incorrect theories can lead us astray. Economists have known for a while that this theory doesn’t fit the facts. When people get a windfall, they tend to spend some of it immediately. So economists have tried to patch up Friedman’s theory, using a couple of plausible fixes….

Milton Friedman’s Cherished Theory Is Laid to Rest (Bloomberg)

Yes, you read that right, economists knew for a long time that a particular theory did not accord with the observed facts, but they didn’t discard it because it was necessary for the complex mathematical models that they use to supposedly describe reality. Rather, instead of discarding it, they tried to “patch it up,” because it told them what they wanted to hear. Note how his economics professor “believed deeply” in the theory, much as how people believe in the Good Book.

Nice “science” you got there.

That methodology ought to tell you everything you need to know about economic “science.” One wonders how many other approaches economists take that such thinking applies to.

Friedman was, of course, the author of “Capitalism and Freedom,” which as we saw above, is quite an ironic title. Friedman’s skill was coming up with ideas that the rich wanted hear, and then coming up with the requisite economic “logic” to justify them, from deregulation, to privatization, to globalization, to the elimination of minimum wages and suppression of unions. His most famous idea was that the sole purpose of a firm is to make money for its shareholders, and all other responsibilities were ‘unethical.’ The resulting “libertarian” economics was promoted tirelessly, including a series on PBS, by wealthy organizations and right-wing think-tanks with bottomless funding, as it still is today (along with its even more extreme cousin, “Austrian” economics). One thing the Luddites did not have to contend with was the power of the media to shape society, one reason why such revolts would be unthinkable today (along with the panopticon police states constructed by capitalist regimes beginning with Great Britain— “freedom” indeed!).

Smith himself has written about what he calls 101-ism:

We all know basically what 101ism says. Markets are efficient. Firms are competitive. Partial-equilibrium supply and demand describes most things. Demand curves slope down and supply curves slope up. Only one curve shifts at a time. No curve is particularly inelastic or elastic; all are somewhere in the middle (straight lines with slopes of 1 and -1 on a blackboard). Etc.

Note that 101 classes don’t necessarily teach that these things are true! I would guess that most do not. Almost all 101 classes teach about elasticity, and give examples with perfectly elastic and perfectly inelastic supply and demand curves. Most teach about market failures and monopolies. Most at least mention general equilibrium.

But for some reason, people seem to come away from 101 classes thinking that the cases that are the easiest to draw on the board are – God only knows why – the benchmark cases.

101ism (Noahpinion)

But the best criticism I’ve read lately is from James Kwak who has written an entire book on the subject: Economism: Bad Economics and the Rise of Inequality. He’s written several posts on the topic, but this post is a good introduction to the concept. Basically, he argues that modern economics allows policies that benefit the rich at the expense of the rest of society to masquerade as objective “scientific” truths thanks to the misapplication of economic ideology. As we saw above ,that goes back to very beginnings of “free market” economics in the nineteenth century:

In policy debates and public relations campaigns…what you are … likely to hear is that a minimum wage must increase unemployment—because that’s what the model says. This conviction that the world must behave the way it does on the blackboard is what I call economism. This style of thinking is influential because it is clear and logical, reducing complex issues to simple, pseudo-mathematical axioms. But it is not simply an innocent mistake made by inattentive undergraduates. Economism is Economics 101 transformed into an ideology—an ideology that is particularly persuasive because it poses as a neutral means of understanding the world.

In the case of low-skilled labor, it’s clear who benefits from a low minimum wage: the restaurant and hotel industries. In their PR campaigns, however, these corporations can hardly come out and say they like their labor as cheap as possible. Instead, armed with the logic of supply and demand, they argue that raising the minimum wage will only increase unemployment and poverty. Similarly, megabanks argue that regulating derivatives will starve the real economy of capital; multinational manufacturing companies argue that new trade agreements will benefit everyone; and the wealthy argue that lower taxes will increase savings and investment, unleashing economic growth.

In each case, economism allows a private interest to pretend that its preferred policies will really benefit society as a whole.The usual result is to increase inequality or to legitimize the widening gulf between rich and poor in contemporary society.

Economics 101, Economism, and Our New Gilded Age (The Baseline Scenario)

All of the above reinforces a couple of points I often like to make:

1.) Capitalism was a creation of government from day one. There is nothing “natural” or “free” about markets.

2.) It is sustained by a particular ideology which poses as a science but is anything but.

These is no fundamental reason we need to work 40 hours a week. There is no reason we have to go into debt just to get a job. There is no benefit to the extreme wealth inequality; it’s not due to any sort of “merit.” And on and on. Economic “logic” is destroying society along with the natural world and preventing any adaptive response to these crises. But its power over the hearts and minds of society seems to be unassailable, at least until it all falls apart.

I think therefore I am capital

Posted on March 12, 2017 by Reid Mukai

By Jamie Goldrick

Source: Adbusters

In the worldview of the Cree, life is lived along a trail of experiences. Sharing experience with others is a result of the crossing of two life trails. Life is experienced as a tangled pattern of all beings. In this way, beings do not occupy one world, as in the Western sense: they inhabit their own relational field.

To the Cree, even the wind is alive. It interacts and has agency, and it has the capacity to come into contact with other beings and be affective. In this respect the wind too has the capacity to be alive as it can give shape to the world. For the Yukaghir in Siberia, Elk have the capacity to enter into personhood depending upon which relational field they enter.

In animist cosmology, objects can be ascribed personhood simply by the fact that they have potential to enter into relations with the environment and other living beings. According to Anthropologist Tim Ingold, “different creatures have different points of view of the world, because of different capabilities and perception they attend to the world in different ways”. Thus to the animist, life is lived through the relational field that objects enter into with each other. Regarding all beings and objects, we exist, therefore we are.

Edward Tylor coined the term animism in 1871. He used it to describe the idea that inanimate beings and objects were attributed with spirits. To Tylor, an evolutionist, this was just an aberration on the part of the animists, a “magical philosophy grounded in error” and nothing more than the simple mistake of a basic society on the path to modernity.

Steeped in the western philosophical tradition, Tylor naturally found focus in rational inquiry and scientific progress. He is a product of the Enlightenment, espousing such values as the natural rights of humans to life, liberty and property. Roy Porter, describing Immanuel Kant, observes:

For Kant enlightenment was man’s final coming of age, the emancipation of human consciousness from an immature state of ignorance and error. He believed that this process of mental liberation was actively at work in his own lifetime. The advancement of knowledge – understanding of nature, but human self-knowledge no less -would propel this giant leap forward.

Yet even to this day Enlightenment values have yet to break free from the shackles of Christianity, perhaps even the Classical Period that came before it as well. There are blind spots and limitations to rational inquiry and scientific progress. Our thinking is infected by it.

One such blind spot presumes a nature-culture divide, the notion that we are different than other sentient beings. In this worldview, animals exist as mere automata. They are machines without consciousness, all body and no mind, or to use Descartes’ famous cogito ergo sum, the definitive difference between us and all other beings on this planet is consciousness: I think, therefore I am.

Thus the environment, the humans who had yet to achieve enlightenment and the animals alike who inhabited it were objects to be manipulated and used by us, the subjects. This is the ontological basis that the West is built upon. It is the foundation that provides the philosophical conditions for capitalism to flourish. The gulf between what is theorized in the minds of men and what is a lived environmental reality was alluded to by one of the foundational thinkers of the Enlightenment, Adam Smith in The Wealth of Nations:

The same division that caused the social organism to grow also causes the individual worker to become impoverished …the man whose life is spent in performing a few simple operations generally becomes as stupid and ignorant as it is possible for a human creature to become.

The Wealth of Nations relied upon the bodily suffering of the disempowered to function at the expense of an abstract social body and to those in possession of the means of production. Written in 1776, things have somewhat changed in the past 240 years.

Briefly, it has been a long, arduous, and somewhat brutal journey for capital to the present day. Capital, in its search for surplus value, has penetrated through domestic markets, foreign markets, future markets, even now to our very sociality via the technological advances that have allowed for online social networking to occur. The collapse of the Bretton Woods agreement, which eliminated the gold standard, allowed the dollar to become symbolic and abstract, facilitating a new definition of economic worth, as evinced by the liberalization of capital markets, the emergence of futures markets, and the notorious derivatives. Economic value has become anthropocentric, a closed human based value system, abstracted from the material environment.

Take for example Google’s $66 billion turnover in 2014, Facebook’s 1.3 billion users, or Twitter’s initial stock market flotation of 23 billion. This value is located in the climate cooled data centers of financial institutions, abstracted from reality. This descent into the digital ether compounds as these abstract value systems begin to play a greater and more influential role in our lives. At a time when our relationship to nature urgently needs to be re-examined, the gulf between nature and culture grows exponentially. Nature – earth’s ‘free gifts’ – becomes further objectified, commodified and excluded from our sense of being-in-the-world.

Maurizio Lazzarato notes that Neoliberalism relies on the individuality of its users, which has a profound effect upon our understanding of the new digital labor. To Lazzarato, digital labor functions by uniting and bringing together extreme individualization and dividuation (the collection of individuals’ idiosyncrasies into data banks) of individuals. The appendages of digital labor feed off our subjectivity and thus enslave us. As Marx argued, machinery enslaves and is manifested as a form of fixed capital. Today these machinic processes have invaded the daily. Lazzarato observes that we are currently enslaved by the mega-machine. Once our individual identity is stripped, a process called machinic enslavement, the individual is rendered as “a gear, a cog, a component part of business and financial assemblages”.

Today the circulation of capital is now the principal means of generating profit. Capital is reliant on human activity to function and flow. Immaterial capital flows are reliant on dividuals to •connect the circuits• between entities. This modern machinic enslavement does not subscribe to traditional categories of subject/object or human/machine binaries. The dividual does not stand by an external machine, for as Lazzarato notes “together they constitute a human machine apparatus in which humans are but recurrent and interchangeable parts of production and consumption. The individual is part of the machine: part-mineral, part-mind and integral to the functioning of modern day capitalism. By habitually updating a status, Googling a mundane thought, or checking into any given establishment, the bodily language of non-engagement now screams: I think, therefore I am capital.

Technology, paced by notions of progress and modernity, has always had an ambivalent place in Western discourse. The obsession with progress obfuscates the objective effects of technology. Technology once demarcated the distinction between work time and leisure time. According to E.P. Thompson: “Before the industrial revolution, time was task based, with the introduction of the machine to the factory floor, this brought the time-keeper, the informer and the fines.” Capital intensive machines had to be attended to round the clock to function. With the advent of the steam engine, the shift from organic to carbon power, a new proletariat was born. Today technology is once again blurring the boundaries by creating a social factory from out of our leisure and private time. History repeats itself, first as tragedy, second as farce. Innovation within the dominant paradigm of capitalism serves to innovate existing forms of domination. In this case, those who control the visions of the future control the present.

The predominant discourse of think therefore I am, and our obsession with progress blinds us to the realities of the day. We are within its apparatus when we work, or when we play, when reaching out to others, or solitarily in our own homes. What if we could see the true effects of this mega-machine? Strip away Cartesian subjectivity and take on the oft forgotten worldview of the animist. Proclaim “what manner are these things, part mineral, part mind that serve the few and enslave the many, while fouling the land, the water and the air! “We can no longer see objects as they truly exist in the world. To use Descartes’ term, now we are the automata, cogs and gears, the circuitry of the mega machine, assembled on the false logic of a nature/culture divide.

Set to the backdrop of species collapse, the disappearance of the rainforests, the acidification of the oceans, the mega-machine operates faster than ever before. The creatures outside look in, from person to machine, and then from human to person, and from person to machine again; but already it is impossible to say which is which….

-Jamie Goldrick is a filmmaker and contributing editor to Rabble magazine in Ireland.

The Great Ponzi Scheme of the Global Economy

Posted on August 18, 2016 by Reid Mukai

By Michael Hudson and Chris Hedges

Source: CounterPunch

CHRIS HEDGES: We’re going to be discussing a great Ponzi scheme that not only defines not only the U.S. but the global economy, how we got there and where we’re going. And with me to discuss this issue is the economist Michael Hudson, author of Killing the Host: How Financial Parasites and Debt Destroy the Global Economy. A professor of economics who worked for many years on Wall Street, where you don’t succeed if you don’t grasp Marx’s dictum that capitalism is about exploitation. And he is also, I should mention, the godson of Leon Trotsky.

I want to open this discussion by reading a passage from your book, which I admire very much, which I think gets to the core of what you discuss. You write,

“Adam Smith long ago remarked that profits often are highest in nations going fastest to ruin. There are many ways to create economic suicide on a national level. The major way through history has been through indebting the economy. Debt always expands to reach a point where it cannot be paid by a large swathe of the economy. This is the point where austerity is imposed and ownership of wealth polarizes between the One Percent and the 99 Percent. Today is not the first time this has occurred in history. But it is the first time that running into debt has occurred deliberately.” Applauded. “As if most debtors can get rich by borrowing, not reduced to a condition of debt peonage.”

So let’s start with the classical economists, who certainly understood this. They were reacting of course to feudalism. And what happened to the study of economics so that it became gamed by ideologues?

HUDSON: The essence of classical economics was to reform industrial capitalism, to streamline it, and to free the European economies from the legacy of feudalism. The legacy of feudalism was landlords extracting land-rent, and living as a class that took income without producing anything. Also, banks that were not funding industry. The leading industrialists from James Watt, with his steam engine, to the railroads …

HEDGES: From your book you make the point that banks almost never funded industry.

HUDSON: That’s the point: They never have. By the time you got to Marx later in the 19th century, you had a discussion, largely in Germany, over how to make banks do something they did not do under feudalism. Right now we’re having the economic surplus being drained not by the landlords but also by banks and bondholders.

Adam Smith was very much against colonialism because that lead to wars, and wars led to public debt. He said the solution to prevent this financial class of bondholders burdening the economy by imposing more and more taxes on consumer goods every time they went to war was to finance wars on a pay-as-you-go basis. Instead of borrowing, you’d tax the people. Then, he thought, if everybody felt the burden of war in the form of paying taxes, they’d be against it. Well, it took all of the 19th century to fight for democracy and to extend the vote so that instead of landlords controlling Parliament and its law-making and tax system through the House of Lords, you’d extend the vote to labor, to women and everybody. The theory was that society as a whole would vote in its self-interest. It would vote for the 99 Percent, not for the One Percent.

By the time Marx wrote in the 1870s, he could see what was happening in Germany. German banks were trying to make money in conjunction with the government, by lending to heavy industry, largely to the military-industrial complex.

HEDGES: This was Bismarck’s kind of social – I don’t know what we’d call it. It was a form of capitalist socialism…

HUDSON: They called it State Capitalism. There was a long discussion by Engels, saying, wait a minute. We’re for Socialism. State Capitalism isn’t what we mean by socialism. There are two kinds of state-oriented–.

HEDGES: I’m going to interject that there was a kind of brilliance behind Bismarck’s policy because he created state pensions, he provided health benefits, and he directed banking toward industry, toward the industrialization of Germany which, as you point out, was very different in Britain and the United States.

HUDSON: German banking was so successful that by the time World War I broke out, there were discussions in English economic journals worrying that Germany and the Axis powers were going to win because their banks were more suited to fund industry. Without industry you can’t have really a military. But British banks only lent for foreign trade and for speculation. Their stock market was a hit-and-run operation. They wanted quick in-and-out profits, while German banks didn’t insist that their clients pay as much in dividends. German banks owned stocks as well as bonds, and there was much more of a mutual partnership.

That’s what most of the 19^th century imagined was going to happen – that the world was on the way to socializing banking. And toward moving capitalism beyond the feudal level, getting rid of the landlord class, getting rid of the rent, getting rid of interest. It was going to be labor and capital, profits and wages, with profits being reinvested in more capital. You’d have an expansion of technology. By the early twentieth century most futurists imagined that we’d be living in a leisure economy by now.

HEDGES: Including Karl Marx.

HUDSON: That’s right. A ten-hour workweek. To Marx, socialism was to be an outgrowth of the reformed state of capitalism, as seemed likely at the time – if labor organized in its self-interest.

HEDGES: Isn’t what happened in large part because of the defeat of Germany in World War I? But also, because we took the understanding of economists like Adam Smith and maybe Keynes. I don’t know who you would blame for this, whether Ricardo or others, but we created a fictitious economic theory to praise a rentier or rent-derived, interest-derived capitalism that countered productive forces within the economy. Perhaps you can address that.

HUDSON: Here’s what happened. Marx traumatized classical economics by taking the concepts of Adam Smith and John Stuart Mill and others, and pushing them to their logical conclusion. Progressive capitalist advocates – Ricardian socialists such as John Stuart Mill – wanted to tax away the land or nationalize it. Marx wanted governments to take over heavy industry and build infrastructure to provide low-cost and ultimately free basic services. This was traumatizing the landlord class and the One Percent. And they fought back. They wanted to make everything part of “the market,” which functioned on credit supplied by them and paid rent to them.

None of the classical economists imagined how the feudal interests – these great vested interests that had all the land and money – actually would fight back and succeed. They thought that the future was going to belong to capital and labor. But by the late 19^th century, certainly in America, people like John Bates Clark came out with a completely different theory, rejecting the classical economics of Adam Smith, the Physiocrats and John Stuart Mill.

HEDGES: Physiocrats are, you’ve tried to explain, the enlightened French economists.

HUDSON: The common denominator among all these classical economists was the distinction between earned income and unearned income. Unearned income was rent and interest. Earned incomes were wages and profits. But John Bates Clark came and said that there’s no such thing as unearned income. He said that the landlord actually earns his rent by taking the effort to provide a house and land to renters, while banks provide credit to earn their interest. Every kind of income is thus “earned,” and everybody earns their income. So everybody who accumulates wealth, by definition, according to his formulas, get rich by adding to what is now called Gross Domestic Product (GDP).

HEDGES: One of the points you make in Killing the Host which I liked was that in almost all cases, those who had the capacity to make money parasitically off interest and rent had either – if you go back to the origins – looted and seized the land by force, or inherited it.

HUDSON: That’s correct. In other words, their income is unearned. The result of this anti-classical revolution you had just before World War I was that today, almost all the economic growth in the last decade has gone to the One Percent. It’s gone to Wall Street, to real estate …

HEDGES: But you blame this on what you call Junk Economics.

HUDSON: Junk Economics is the anti-classical reaction.

HEDGES: Explain a little bit how, in essence, it’s a fictitious form of measuring the economy.

HUDSON: Well, some time ago I went to a bank, a block away from here – a Chase Manhattan bank – and I took out money from the teller. As I turned around and took a few steps, there were two pickpockets. One pushed me over and the other grabbed the money and ran out. The guard stood there and saw it. So I asked for the money back. I said, look, I was robbed in your bank, right inside. And they said, “Well, we don’t arm our guards because if they shot someone, the thief could sue us and we don’t want that.” They gave me an equivalent amount of money back.

Well, imagine if you count all this crime, all the money that’s taken, as an addition to GDP. Because now the crook has provided the service of not stabbing me. Or suppose somebody’s held up at an ATM machine and the robber says, “Your money or your life.” You say, “Okay, here’s my money.” The crook has given you the choice of your life. In a way that’s how the Gross National Product accounts are put up. It’s not so different from how Wall Street extracts money from the economy. Then also you have landlords extracting …

HEDGES: Let’s go back. They’re extracting money from the economy by debt peonage. By raising …

HUDSON: By not playing a productive role, basically.

HEDGES: Right. So it’s credit card interest, mortgage interest, car loans, student loans. That’s how they make their funds.

HUDSON: That’s right. Money is not a factor of production. But in order to have access to credit, in order to get money, in order to get an education, you have to pay the banks. At New York University here, for instance, they have Citibank. I think Citibank people were on the board of directors at NYU. You get the students, when they come here, to start at the local bank. And once you are in a bank and have monthly funds taken out of your account for electric utilities, or whatever, it’s very cumbersome to change.

So basically you have what the classical economists called the rentier class. The class that lives on economic rents. Landlords, monopolists charging more, and the banks. If you have a pharmaceutical company that raises the price of a drug from $12 a shot to $200 all of a sudden, their profits go up. Their increased price for the drug is counted in the national income accounts as if the economy is producing more. So all this presumed economic growth that has all been taken by the One Percent in the last ten years, and people say the economy is growing. But the economy isn’t growing …

HEDGES: Because it’s not reinvested.

HUDSON: That’s right. It’s not production, it’s not consumption. The wealth of the One Percent is obtained essentially by lending money to the 99 Percent and then charging interest on it, and recycling this interest at an exponentially growing rate.

HEDGES: And why is it important, as I think you point out in your book, that economic theory counts this rentier income as productive income? Explain why that’s important.

HUDSON: If you’re a rentier, you want to say that you earned your income by …

HEDGES: We’re talking about Goldman Sachs, by the way.

HUDSON: Yes, Goldman Sachs. The head of Goldman Sachs came out and said that Goldman Sachs workers are the most productive in the world. That’s why they’re paid what they are. The concept of productivity in America is income divided by labor. So if you’re Goldman Sachs and you pay yourself $20 million a year in salary and bonuses, you’re considered to have added $20 million to GDP, and that’s enormously productive. So we’re talking in a tautology. We’re talking with circular reasoning here.

So the issue is whether Goldman Sachs, Wall Street and predatory pharmaceutical firms, actually add “product” or whether they’re just exploiting other people. That’s why I used the word parasitism in my book’s title. People think of a parasite as simply taking money, taking blood out of a host or taking money out of the economy. But in nature it’s much more complicated. The parasite can’t simply come in and take something. First of all, it needs to numb the host. It has an enzyme so that the host doesn’t realize the parasite’s there. And then the parasites have another enzyme that takes over the host’s brain. It makes the host imagine that the parasite is part of its own body, actually part of itself and hence to be protected.

That’s basically what Wall Street has done. It depicts itself as part of the economy. Not as a wrapping around it, not as external to it, but actually the part that’s helping the body grow, and that actually is responsible for most of the growth. But in fact it’s the parasite that is taking over the growth.

The result is an inversion of classical economics. It turns Adam Smith upside down. It says what the classical economists said was unproductive – parasitism – actually is the real economy. And that the parasites are labor and industry that get in the way of what the parasite wants – which is to reproduce itself, not help the host, that is, labor and capital.

HEDGES: And then the classical economists like Adam Smith were quite clear that unless that rentier income, you know, the money made by things like hedge funds, was heavily taxed and put back into the economy, the economy would ultimately go into a kind of tailspin. And I think the example of that, which you point out in your book, is what’s happened in terms of large corporations with stock dividends and buybacks. And maybe you can explain that.

HUDSON: There’s an idea in superficial textbooks and the public media that if companies make a large profit, they make it by being productive. And with …

HEDGES: Which is still in textbooks, isn’t it?

HUDSON: Yes. And also that if a stock price goes up, you’re just capitalizing the profits – and the stock price reflects the productive role of the company. But that’s not what’s been happening in the last ten years. Just in the last two years, 92 percent of corporate profits in America have been spent either on buying back their own stock, or paid out as dividends to raise the price of the stock.

HEDGES: Explain why they do this.

HUDSON: About 15 years ago at Harvard, Professor Jensen said that the way to ensure that corporations are run most efficiently is to make the managers increase the price of the stock. So if you give the managers stock options, and you pay them not according to how much they’re producing or making the company bigger, or expanding production, but the price of the stock, then you’ll have the corporation run efficiently, financial style.

So the corporate managers find there are two ways that they can increase the price of the stock. The first thing is to cut back long-term investment, and use the money instead to buy back their own stock. But when you buy your own stock, that means you’re not putting the money into capital formation. You’re not building new factories. You’re not hiring more labor. You can actually increase the stock price by firing labor.

HEDGES: That strategy only works temporarily.

HUDSON: Temporarily. By using the income from past investments just to buy back stock, fire the labor force if you can, and work it more intensively. Pay it out as dividends. That basically is the corporate raider’s model. You use the money to pay off the junk bond holders at high interest. And of course, this gets the company in trouble after a while, because there is no new investment.

So markets shrink. You then go to the labor unions and say, gee, this company’s near bankruptcy, and we don’t want to have to fire you. The way that you can keep your job is if we downgrade your pensions. Instead of giving you what we promised, the defined benefit pension, we’ll turn it into a defined contribution plan. You know what you pay every month, but you don’t know what’s going to come out. Or, you wipe out the pension fund, push it on to the government’s Pension Benefit Guarantee Corporation, and use the money that you were going to pay for pensions to pay stock dividends. By then the whole economy is turning down. It’s hollowed out. It shrinks and collapses. But by that time the managers will have left the company. They will have taken their bonuses and salaries and run.

HEDGES: I want to read this quote from your book, written by David Harvey, in A Brief History of Neoliberalism, and have you comment on it.

“The main substantive achievement of neoliberalism has been to redistribute rather than to generate wealth and income. [By] ‘accumulation by dispossession’ I mean … the commodification and privatization of land, and the forceful expulsion of peasant populations; conversion of various forms of property rights (common collective state, etc.) into exclusive private property rights; suppression of rights to the commons; … colonial, neocolonial, and the imperial processes of appropriation of assets (including natural resources); … and usury, the national debt and, most devastating at all, the use of the credit system as a radical means of accumulation by dispossession. … To this list of mechanisms, we may now add a raft of techniques such as the extraction of rents from patents, and intellectual property rights (such as the diminution or erasure of various forms of common property rights, such as state pensions, paid vacations, and access to education, health care) one through a generation or more of class struggle. The proposal to privatize all state pension rights, pioneered in Chile under the dictatorship is, for example, one of the cherished objectives of the Republicans in the US.”

This explains the denouement. The final end result you speak about in your book is, in essence, allowing what you call the rentier or the speculative class to cannibalize the entire society until it collapses.

HUDSON: A property right is not a factor of production. Look at what happened in Chicago, the city where I grew up. Chicago didn’t want to raise taxes on real estate, especially on its expensive commercial real estate. So its budget ran a deficit. They needed money to pay the bondholders, so they sold off the parking rights to have meters – you know, along the curbs. The result is that they sold to Goldman Sachs 75 years of the right to put up parking meters. So now the cost of living and doing business in Chicago is raised by having to pay the parking meters. If Chicago is going to have a parade and block off traffic, it has to pay Goldman Sachs what the firm would have made if the streets wouldn’t have been closed off for a parade. All of a sudden it’s much more expensive to live in Chicago because of this.

But this added expense of having to pay parking rights to Goldman Sachs – to pay out interest to its bondholders – is counted as an increase in GDP, because you’ve created more product simply by charging more. If you sell off a road, a government or local road, and you put up a toll booth and make it into a toll road, all of a sudden GDP goes up.

If you go to war abroad, and you spend more money on the military-industrial complex, all this is counted as increased production. None of this is really part of the production system of the capital and labor building more factories and producing more things that people need to live and do business. All of this is overhead. But there’s no distinction between wealth and overhead.

Failing to draw that distinction means that the host doesn’t realize that there is a parasite there. The host economy, the industrial economy, doesn’t realize what the industrialists realized in the 19^th century: If you want to be an efficient economy and be low-priced and under-sell competitors, you have to cut your prices by having the public sector provide roads freely. Medical care freely. Education freely.

If you charge for all of these, you get to the point that the U.S. economy is in today. What if American factory workers were to get all of their consumer goods for nothing. All their food, transportation, clothing, furniture, everything for nothing. They still couldn’t compete with Asians or other producers, because they have to pay up to 43% of their income for rent or mortgage interest, 10% or more of their income for student loans, credit card debt. 15% of their paycheck is automatic withholding to pay Social Security, to cut taxes on the rich or to pay for medical care.

So Americans built into the economy all this overhead. There’s no distinction between growth and overhead. It’s all made America so high-priced that we’re priced out of the market, regardless of what trade policy we have.

HEDGES: We should add that under this predatory form of economics, you game the system. So you privatize pension funds, you force them into the stock market, an overinflated stock market. But because of the way companies go public, it’s the hedge fund managers who profit. And it’s those citizens whose retirement savings are tied to the stock market who lose. Maybe we can just conclude by talking about how the system is fixed, not only in terms of burdening the citizen with debt peonage, but by forcing them into the market to fleece them again.

HUDSON: Well, we talk about an innovation economy as if that makes money. Suppose you have an innovation and a company goes public. They go to Goldman Sachs and other Wall Street investment banks to underwrite the stock to issue it at $40 a share. What’s considered a successful float is when, immediately, Goldman and the others will go to their insiders and tell them to buy this stock and make a quick killing. A “successful” flotation doubles the price in one day, so that at the end of the day the stock’s selling for $80.

HEDGES: They have the option to buy it before anyone else, knowing that by the end of the day it’ll be inflated, and then they sell it off.

HUDSON: That’s exactly right.

HEDGES: So the pension funds come in and buy it at an inflated price, and then it goes back down.

HUDSON: It may go back down, or it may be that the company just was shortchanged from the very beginning. The important thing is that the Wall Street underwriting firm, and the speculators it rounds up, get more in a single day than all the years it took to put the company together. The company gets $40. And the banks and their crony speculators also get $40.

So basically you have the financial sector ending up with much more of the gains. The name of the game if you’re on Wall Street isn’t profits. It’s capital gains. And that’s something that wasn’t even part of classical economics. They didn’t anticipate that the price of assets would go up for any other reason than earning more money and capitalizing on income. But what you have had in the last 50 years – really since World War II – has been asset-price inflation. Most middle-class families have gotten the wealth that they’ve got since 1945 not really by saving what they’ve earned by working, but by the price of their house going up. They’ve benefited by the price of the house. And they think that that’s made them rich and the whole economy rich.

The reason the price of housing has gone up is that a house is worth whatever a bank is going to lend against it. If banks made easier and easier credit, lower down payments, then you’re going to have a financial bubble. And now, you have real estate having gone up as high as it can. I don’t think it can take more than 43% of somebody’s income to buy it. But now, imagine if you’re joining the labor force. You’re not going to be able to buy a house at today’s prices, putting down a little bit of your money, and then somehow end up getting rich just on the house investment. All of this money you pay the bank is now going to be subtracted from the amount of money that you have available to spend on goods and services.

So we’ve turned the post-war economy that made America prosperous and rich inside out. Somehow most people believed they could get rich by going into debt to borrow assets that were going to rise in price. But you can’t get rich, ultimately, by going into debt. In the end the creditors always win. That’s why every society since Sumer and Babylonia have had to either cancel the debts, or you come to a society like Rome that didn’t cancel the debts, and then you have a dark age. Everything collapses.

Michael Hudson’s new book, Killing the Host is published in e-format by CounterPunch Books and in print by Islet. He can be reached via his website, mh@michael-hudson.com. Chris Hedges’s latest book is Days of Destruction, Days of Revolt, illustrated by Joe Sacco.

No Man’s Land

Posted on May 11, 2016 by Reid Mukai

By Steven Stoll

Source: Orion Magazine

A chainlink fence topped with razor wire surrounds fourteen acres of thistle and grass at East Forty-First Street between Long Beach Avenue and South Alameda Street in Los Angeles. These two city blocks occupy a transitional environment of sorts. In one direction the sight of small houses stretches for miles toward the Pacific Ocean, but turn around and the neighborhood becomes industrial, consisting of a textile factory, a scrap metal recycling company, trucking terminals, and warehouses. The tracks of the Southern Pacific Railroad run parallel to Long Beach Avenue. There are few trees or anything green and growing but the drought-resistant thistle.

In 1986, the City of Los Angeles acquired the land from a group of owners through eminent domain, but then folded plans to build a waste incinerator when the community resisted. The land ended up in the holdings of the Harbor Department. It had been two years since the uprising that followed the acquittal of four Los Angeles police officers, tried for beating Rodney King. Perhaps looking to make a gesture and lacking its own use for the site, the Harbor Department invited members of a local food bank to plant a community garden.

They did. Between 1994 and 2006 hundreds of families grew a profusion of food plants on what had been a blighted lot just a few years before. One visitor identified a hundred species, most of them native to Mexico and South America— chayote, guava, tomatillo, sapodilla, and sugarcane, in addition to maize, beans, avocados, bananas, and squashes. The South Central Farm was not misnamed: photographs show the land in robust cultivation, producing a wealth of food.

But in 2001, one of the prior owners filed a lawsuit against the city. The property had never been used to build the incinerator, and so, he argued, Los Angeles had no reason to seize it. The city settled the case in 2003 by selling the fourteen acres back to the prior owner.

In the ensuing confrontation a single absentee negated the sustained labor and improvements of 350 families, representing around a thousand people, now accused of squatting. They refused to leave. Lawyers filed briefs. Gardeners swore resistance. (One said, “Just think if we assemble, two from every family, and you know we’ll each grab a hoe, and no one will get past us.”) Movie stars showed up with camera crews. A foundation offered millions of dollars as a purchase price, which the owner rejected. A date was set for the forced removal of the stalwarts. On June 13, 2006, Los Angeles County Sheriffs arrested forty people. Bulldozers destroyed the farm. A decade later, the land remains vacant.

In the case of the South Central Farm, ownership for profit triumphed over use for subsistence, which, of course, is the way of the world. Nothing could be more ordinary than a landowner asserting his rights. And yet, just five centuries ago, what happened on those fourteen acres in south Los Angeles wouldn’t have made sense to anyone.

In 1500, no one sold land because no one owned it. People in the past did, however, claim and control territory in a variety of ways. Groups of hunters and later villages of herders or farmers found means of taking what they needed while leaving the larger landscape for others to glean from. They certainly fought over the richest hunting grounds and most fertile valleys, but they justified their right by their active use. In other words, they asserted rights of appropriation. We appropriate all the time. We conquer parking spaces at the grocery store, for example, and hold them until we are ready to give them up. The parking spaces do not become ours to keep; the basis of our right to occupy them is that we occupy them. Only until very recently, humans inhabited the niches and environments of Earth somewhat like parking spaces.

Ownership is different from appropriation. It confers exclusive rights derived from and enforced by the state. These rights do not come from active use or occupancy. Property owners can neglect land for years, waiting for the best time to sell it, even if others would put it to better use. And in the absence of laws protecting landscapes, the holders of legal title can mow down a rainforest or drain a wetland without regard to social and ecological cost. Not all owners are destructive or irresponsible, but the imperative to seek maximum profit is built into the assumptions within private property. Land that costs money must make money.

Champions of capitalism don’t see private property as a social practice with a history but as a universal desire—a nearly physical law—that amounts to the very expression of freedom. The economist Friedrich Hayek called it “the most important guarantee of freedom, not only for those who own property, but scarcely less for those who do not.” But Hayek never explained how buyers and sellers of real estate spread a blanket of liberty over their tenants. And he never mentioned the fact that the concept, far from being natural law, was created by nation-states—the notion that someone could claim a bit of the planet all to himself is relatively new.

Every social system falls into contradictions, opposing or inconsistent aspects within its assumptions that have no clear resolution. These can be managed or put off, but some of them are serious enough to undermine the entire system. In the case of private property, there are at least two—and they may throw the very essence of capitalism into illegitimacy.

The first of the system’s contradictions points to its origins. Land in the English countryside during the sixteenth century was regulated by feudal obligations so obscure and so thick that few people today can make sense of them. An English peasant could use a run of soil for a term of years or for her entire life, but it did not belong to her. Village elders, representatives of the local lord, and even the deacon of the church might have claimed an interest in how this or that field was planted. Everyone from monarch to serf received a different slice of the realm. These use rights could be exchanged only in very limited ways: a lord occupied his ancestral house and manor for as long as he lived, but he could not sell them.

All sorts of events caused the demise of feudalism. The Black Death of the fourteenth century killed so many millions that the labor market tipped in favor of those who survived. The spread of money gave things exchange value and made buying and selling easier. Food production increased during the sixteenth century, creating more calories for work and more commodities for trade. And an international wool market inspired lords to change common fields into sheep walks.

The problem was that lords could not put sheep where they wanted. They lived within the feudal assemblage of obligations and rights attached to social orders and scraps of landscape. Faced with declining returns and proliferating opportunities, they began to curse the old rules—they wanted land for themselves.

Enclosure is just what it sounds like: the physical and legal bounding of an area. In practice it meant the seizure of villages, common fields, and outlying forests and marshes. It allowed lords to evict former residents so that they could do new things with land. Sometimes it happened by agreement, with peasants giving in to demands they feared to contest; other times there was violence. In 1607 at least one thousand peasants tore up hedges in Northamptonshire and filled in ditches that demarcated property lines. The rebels made a statement: “Wee, as members of the whole, doe feele the smarte of these incroaching Tirants, which would grind our flesh upon the whetstone of poverty.” King James didn’t flinch from the whetstone. His forces killed forty insurgents and hanged their leader.

The king’s involvement tells us that grasping lords did not do this dirty work by themselves. Parliament legalized their land grab by granting them something that had never before existed in human history: ownership. Lords could now act without regard to tradition or the needs of residents. Some demolished whole communities. The word pauper dates from the seventeenth century to describe poor people who wandered the roads homeless, eating anything they could scavenge and turning up cold and wet at church doors. Peasants became workers as their only option for survival. Some stooped for a wage on the very land they once tilled as members of villages.

Enclosure created two things at once: private property and wage labor, the essential preconditions for capitalism. Like all social practices, private property has a degree of flexibility. Some of its advantages can and should be diffused among as many people as possible. By eliminating messy titles to land and its embeddedness in tradition, enclosure made possible a new measure of innovation and abundance. But that’s also the first of its contradictions. It generates wealth and unprecedented social power for some by making others poor and dependent.

All of this matters because enclosure never came to an end. It jumped continents and kept on going. The colonial wars for North America, in which Britain and then the United States seized land from hundreds of tribes, can be understood as a rolling dispossession—by purchase, treaty, and ejectment. Enclosure also took place in Australia and South Africa. Wherever nation-states became landowners they turned the commons into private property. The epicenter of enclosure today is Africa. A resident of the village of Dialakoroba, in Mali, which has lost thousands of acres to foreign investors, recently said this: “I do not know, in ten to twenty years, how people will live in our villages because there will be no land to till. . . . Everything has been sold to rich people in very opaque conditions.”

Private property’s second contradiction comes from the odd notion that land is a commodity, which is anything produced by human labor and intended for exchange. Land violates the first category, but what about the second? As the historian Karl Polanyi wrote, land is just another name for nature. It’s the essence of human survival. To regard it as an item for exchange “means to subordinate the substance of society itself to the laws of the market.”

Clearly, though, we regard land as a commodity and this seems natural to us. Yet it represents an astonishing revolution in human perception. Real estate is a legal abstraction that we project over ecological space. It allows us to pretend that a thousand acres for sale off some freeway is not part of the breathing, slithering lattice of nonhuman stakeholders. Extending the surveyor’s grid over North America transformed mountain hollows and desert valleys into exchangeable units that became farms, factories, and suburbs. The grid has entered our brains, too: thinking, dealing, and making a living on real estate habituates us to seeing the biosphere as little more than a series of opportunities for moneymaking. Private property isn’t just a legal idea; it’s the basis of a social system that constructs environments and identities in its image.

Advocates of private property usually fail to point out all the ways it does not serve the greater good. Adam Smith famously believed that self-interested market exchange improves everything, but he really offered little more than that hope. He could not have imagined mountains bulldozed and dumped into creeks. He could not have imagined Camden, New Jersey, and other urban sacrifice zones, established by corporations and then abandoned by them. Maximum profit is the singular, monolithic interest at the heart of private property. Only the public can represent all the other human and nonhuman interests.

Unbelievably, perhaps, the United States Congress has done this. Consider one of its greatest achievements: the Endangered Species Act (ESA) of 1973. The act nails the abstraction of real estate to the ground. When a conglomerate of California developers proposed a phalanx of suburbs across part of the Central Valley, they came face to face with their nemesis: the vernal pool fairy shrimp. In 2002, the Supreme Court upheld the shrimp’s status as endangered and blocked construction. It was a case in which the ESA diminished the sacred rights to property for the sake of tiny invertebrates, leaving critics of the law dumbfounded. But those who would repeal the ESA (and all the other environmental legislation of the 1970s) don’t appreciate the contradiction it helps a little to contain: the compulsion to derive endless wealth from a muddy, mossy planet.

Of course, in the era of climate change, those invaluable laws and the agencies they created now seem too limited in their scope and powers to take on the spectacular collision between Economy and Ecology now in motion. But maybe the most radical way we can treat the ownership of Earth—the single most subversive notion we can have about private property—is that it’s merely a social relationship, an agreement between people to behave in certain ways. It can be challenged, changed, and contained. Much of what holds failing social systems together is that those in power succeed in eliminating the mere thought that things could be otherwise.

Should private property itself be extinguished? It’s a legitimate question, but there is no clear pathway to a system that would take its place, which could amount to some kind of global commons. Instead I suggest land reform, not the extinguishing of property rights but their radical diffusion. Imagine a space in which people own small homes and gardens but share a larger area of fields and woods. Let’s call such legislation the American Commons Communities Act or the Agrarian Economy Act. A policy of this sort might offer education in sustainable agriculture keyed to acquiring a workable farm in a rural or urban landscape. The United States would further invest in any infrastructure necessary to move crops to markets.

Let’s give abandoned buildings, storefronts, and warehouses to those who would establish communities for the homeless. According to one estimate, there are ten vacant homes for every homeless person. Squatting in unused buildings carries certain social benefits that should be recognized. It prevents the homeless from seeking out the suburban fringe, far from transportation and jobs (though it’s no substitute for dignified public housing). Plenty of people are now planting seeds in derelict city lots. In Los Angeles, an activist named Ron Finley looks for weedy ground anywhere he can find it for what he calls “gangsta gardening,” often challenging absentee owners. In 2013, the California legislature responded to sustained pressure from urban gardeners like Finley and passed the Urban Agriculture Incentive Zones Act, which gives tax breaks to any owner who allows vacant land to be used for “sustainable urban farm enterprise.”

Squatting raises another, much larger question. To what extent should improvements to land qualify one for property rights? The suppression of traditional privileges of appropriation amounts to one of the most revolutionary changes in the last five hundred years. All through the centuries people who worked land they did not own (like squatters and slaves) insisted that their toil granted them title. The United States once endorsed this view. The Homestead Act of 1862 granted 160 acres to any farmer who improved it for five years. Western squatters’ clubs and local preemption laws also endorsed the idea that labor in the earth conferred ownership.

It’s worth remembering that there is nothing about private property that says it must be for private use. Conservation land trusts own vast areas as nonprofit corporations and invite the public to hike and bike. It’s not an erosion of the institution of property but an ingenious reversal of its beneficiaries. But don’t wait for a land trust to be established before you enjoy the fenced up beaches or forests near where you live. Declare the absentee owners trustees of the public good and trespass at will. As long as the land in question is not someone’s home or place of business, signs that say KEEP OUT can, in my view, be morally and ethically ignored. Cross over these boundaries while humming “This Land Is Your Land.” Pick wildflowers, watch sand crabs in the surf, linger on your estate. Violating absentee ownership is a long-held and honorable tradition.

The arrest of the South Central Farmers was deeply disturbing in Los Angeles. So much so that citizens began to call for other farms, in other locations throughout the city and county. Ten years later community gardens abound. More than a hundred of them are thriving, including the Stanford Avalon Community Garden, which was established by some of the very families evicted from the South Central Farm. It runs one mile long and 80 feet wide underneath power lines, on city property. There is space for 180 plots, each about 1,300 square feet. The farmers compete with each other for the greatest yields. They pay a small fee for a plot and absorb all the food into their households, to be eaten and sold.

Building this garden movement has not extinguished any of the rights of private or public landowners. But only sustained resistance and protest could have forced these entities to accommodate thousands of household farmers. Yet nothing could be more ordinary or more radical than the desire for autonomy from the tyranny of wages, a dream that persists in billions of humans striving in slums and factories, ready for their moment to reclaim the commons.

Steven Stoll is Professor of History at Fordham University, where he teaches environmental history and the history of capitalism and agrarian societies. He is the author of Larding the Lean Earth: Soil and Society in Nineteenth-Century America (2002) and The Great Delusion (2008), about the origins of economic growth in utopian science. His writing has appeared in Harper’s Magazine, Lapham’s Quarterly, and the New Haven Review. He is finishing a book about losing land and livelihood in Appalachia.

Life in the Algorithm

Posted on February 11, 2015 by Reid Mukai

By Douglas Haddow

Source: Adbusters

The searches we make, the news we read, the dates we go on, the advertisements we see, the products we buy and the music we listen to. The stock market. The surveillance society. The police state, and the drones. All guided by a force we never see and few understand.

A series of calculation procedures that come together to constitute capitalism’s secret ingredient — the all holy algorithm, that which binds and optimizes. Those strange numerical gods who decide whether or not you’re a terrorist and what kids’ toy is going to set the market on fire this Christmas. But what are they, where did they come from and how did they get so powerful?

Algorithms are not new. You can trace their origin all the way back to a 9th century Persian mathematician by the name of Muhammad ibn Musa al–Khwarizmi (Algoritmi in Latin) from whom the word derives its name. Then there was Abu Yusaf Ya’qub ibn Ishaq al–Kindi, a contemporary of al–Khwarizmi’s at Baghdad’s House of Wisdom. He discovered and developed the science of frequency analysis, or code–breaking, providing a basis for code breaker Alan Turing to develop his Turing Machine, the theoretical prototype for the 9 billion devices currently sending and receiving signals through the Internet.

When we talk about algorithms, when they come up in conversation, often tied to latent and emerging fears, we’re not talking about the mathematical models behind them, we’re talking about the models that the models were modeled on. Most people have never heard of a polytope, Boolean Logic or the Hirsch Conjecture. But everyone has a credit score, whether they like it or not.

If we want to interrogate the true nature of these numbers, the wizard behind the ghost in the machine, we need to look no further than Adam Smith, that dour Scot who lived with his mum and accidentally created the modern world.

Smith was neither a modernist nor a cosmopolitan. He was an absent’minded hermit who never married, had few friends, suffered from alternating fits of depression and hypochondria, travelled outside Britain on just one occasion and demanded that all his personal writing be burned upon his death. He was the supreme king of unintended consequences, a humble and misunderstood moral philosopher who became the patron saint of greed.

Most famously, and most tragically, Smith was an ambitious writer who got a bit flowery with his language on occasion, and, as a result, his entire legacy was reduced to two words: invisible and hand. As in, the Invisible Hand — that mysterious market force that secretly and surreptitiously guides all our actions and decisions. Or so we’ve been told.

In The Wealth of Nations, the blueprint for what became known as capitalism, Smith drops the phrase but once. It’s situated in a rather dry discussion on trade policy and is used as a metaphor in a straightforward critique of mercantilism’s excessive restrictions.

And that’s it. Just a cursory metaphor used for poetic flourish in an otherwise obscure and forgettable passage. And for the 150 years that followed the book’s publication, that’s exactly what it was — obscure and forgotten. Smith didn’t mention it, his contemporaries didn’t mention it, nor did his critics. Nary a soul on Earth repeated those two words or paid them any heed.

That is, until 1948, when everything changes.

If you look at a Google NGRAM chart of “invisible hand,” you’ll see that there was little to no interest in the phrase up until the 1930s and ’40s, at which point it begins to bubble up a bit, gaining traction in a few peripheral spheres here and there. Then in ’48, Chicago School economist Paul Samuelson writes a book called Economics: An Introductory Analysis, which would go on to become the best–selling economics book of all time.

In his book, Samuelson grabs hold of Smith’s wordplay and freebases meaning from it until a mere metaphor mutates into the economic doctrine that would define the shape and form of global finance for the remainder of the century, and beyond.

“Every individual, in pursuing only his own selfish good, was led, as if by an invisible hand, to achieve the best good for all, so that any interference with free competition by government was almost certain to be injurious,” writes Samuelson. And with that, not only is it justifiable to be callous in the pursuit of wealth, your callousness will somehow, vis–à–vis the invisible hand, uplift those you trample on your way to the top.

Picture Gordon Gekko, hair trickling with high–end product, walking with the gait of limitless sprezzatura, saying, “Greed is right, greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.”

Samuelson would later go on to regret the liberties he took with Smith’s words, but the meme had already been injected into the passive hive mind of economics. What followed was a long and tangled game of economic telephone wherein Smith’s fatalistic conceit gradually took on mythical qualities. From turn of phrase to doctrine, from doctrine to dogma, from dogma to metaphysical law. The invisible hand became the celestial justification of the free market and the economic rationalist’s negation of anything that stood in its way.

Austrian economist Friedrich Hayek even went so far as to develop an entire theory of human interaction based on the myth. It was called Catallactics, and proposed that we did not live within an economy, but rather, a Catallaxy — a complex and self–organizing system in which every individual sent out a constant stream of complex signals that mixed to create overall market behavior.

Knowledge, Hayek argued, was distributed on an individual level, each person containing their own fraction of the whole.

The vast repository of human knowledge was inherently decentralized. Because of this, no central body or government agency could ever hope to contain enough of it to know what was really going on. But if allowed to move freely without meddling, these messages would come together to create order and equilibrium in the market.

This, he argued, is why the government should never meddle in the market. And why order could never be “planned,” and was instead “brought about by the mutual adjustment of many individual economies in a market.” As long as the signals, our private info–snowflakes, could float freely, the market would reach equilibrium.

Through Hayek, dogma became revelation — the invisible hand was not merely a magical presence promising equilibrium, it was also pointing us toward a not–too–distant utopia. And if we didn’t follow the hand? Oppression and despair would follow mankind into a dark hole of tyranny.

Hayek’s ideas spread swiftly through a series of think tanks connected to his economic clique, The Mont Pelerin Society, which counted Karl Popper, Ludwig von Mises and, of course, who else but Milton Friedman among its members. Together they successfully launched what we now call “neoliberalism” into the political consciousness.

Neoliberalism found its champions in Margaret Thatcher and Ronald Reagan. Thatcher regularly corresponded with Hayek and used the slogan There Is No Alternative (TINA) to explain her affection for its concepts. Reagan hired Friedman to be his economic advisor. And together they carried out an economic revolution that smashed trade unions and deregulated and privatized anything and everything that could be guillotined. From this axis of Anglos, it spread to other parts of the Commonwealth, then to Europe, Asia, South America and beyond.

But no matter how much they stripped away government meddling, somehow the “abstract signals” still weren’t getting through. The hand remained clenched and crises endemic. Asia, Argentina, the Eurozone, the 2008 meltdown, the flash crash. The market continually failing to magically self–correct and achieve equilibrium.

The faithful kept their faith and stuck to the program. The crisis, both economic and existential, were met with a recommitment to the faith in the form of austerity and technology and the dream persisted.

The problem was obvious to anyone outside the neoliberal thought–bubble: the invisible hand wasn’t real and it didn’t exist. It never had existed. It wasn’t just invisible, but immaterial, made from the twisted fantasies of economists obsessed with achieving an impossible “equilibrium.” You couldn’t touch it, and it couldn’t touch you.
Until now.

In 2010, when the Dow Jones Industrial dropped 1000 points in under a minute, the biggest one–day point decline in history, it received far less attention then it deserved, because everything returned to normal a few seconds later. Now, miniature flash crashes occur constantly throughout the day. But this crash was a turning point, demonstrating that something had changed. That something was that the neoliberals had achieved what communists, socialists and Christians never could: they made their god real, and in doing so, achieved their utopia. They just didn’t let the rest of us in on it.

The critical flaw in Hayek’s vision of the hand was that a “central body” could never gather enough information. We know this to be untrue, and with big data and the analysis and manipulation of that data through algorithmic equation, the missing link between money and the machine was discovered.

The searches we make, the news we read, the dates we go on, the advertisements we see, the products we buy and the music we listen to. The stock market … All informed by this marriage between mathematics and capital, all working together in perfect harmony to achieve a singular goal — equilibrium. But it’s a curious sort of equilibrium. Less to do with the relationship between supply and demand, and more about the man and the market.

All these algorithms we encounter throughout the day, they’re working toward a greater goal: solving problems and learning how to think. Like the advent and rise of high–frequency trading, they’re part of an optimization trend that leads to a strange brand of perfection: automated profit.

And their current day use, no matter how impressive the specs, is still rooted in 7th century code–breaking. Only now it’s about breaking our individual codes. Throughout the day we send out thousands of our own individual abstract signals and the algorithms figure out how best to streamline our existence into the market’s needs. We’re all just cyphers waiting to get cracked.

This is not the stuff of Orwell and Huxley, but Amazon and the NSA.

There is an overwhelming feeling of inevitability surrounding all of this. With computational capacity still threatening to double every two years, the algorithmic estate will continue to expand and become more sophisticated. All of this development, testing and research is leading to a predictable outcome. Given that they are leading investment and research in the sector, Wall Street financiers will develop the world’s first fully functioning Artificial Intelligence.

If any of this feels inevitable, it’s because it was designed to make us feel that way. If the algorithms that organize the world of money were turned on their head and used to analyze the defects in their guiding philosophy, they would shred it all on one razor sharp fact: the world beyond the market is still a real one. And no matter how sophisticated the math, how brilliant the AI, we will always be living in it.

Outside of The Wealth of Nations, Smith employed the Invisible Hand concept on only two other occasions. Once in his Theory of Moral Sentiments, where he slags off the rich, and the other in the History of Astronomy, where he says:

For it may be observed, that in all Polytheistic religions, among savages, as well as in the early ages of Heathen antiquity, it is the irregular events of nature only that are ascribed to the agency and power of their gods. Fire burns, and water refreshes; heavy bodies descend, and lighter substances fly upwards, by the necessity of their own nature; the invisible hand of Jupiter was never apprehended to be employed in those matters.

These days, the “savages” kick back, polish their yachts and let the machines do their thinking for them. Their god is a primitive and cruel one. Worse yet, it lacks imagination. The future it sees is just an optimized version of the present. Everything that falls within its gaze is predictable, because mathematical sequences are predictable. What remains to be seen is whether or not human beings are as predictable as the machines think we are.

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After the Crash

Dispatches From a Long Recovery (Est. 10/2024)

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